Trust and Disintermediation: Evidence from an Online Freelance Marketplace

As an intermediary improves trust between two sides of its market to facilitate matching and transactions, it faces an increased risk of disintermediation: with sufficient trust, the two sides may circumvent the intermediary to avoid the intermediary's fees. We investigate the relationship between increased trust and disintermediation by leveraging a randomized control trial on a major online freelance marketplace. Our results show that enhanced trust increases the chance for high-quality freelancers to be hired. When the trust level is sufficiently high, however, it also increases disintermediation, which offsets the revenue gains from the increase in the hiring of high-quality freelancers. We also identify heterogeneity across clients and freelancers in their tendencies to disintermediate.