Summary

This study examines how online reputation systems reduce fraud (scamming) on illegal drug-selling platforms known as Darknet Markets (DNMs). Unlike legal platforms such as eBay or Amazon, DNMs operate without legal protection, so trust relies almost entirely on e-reputation mechanisms.

Using data from the Hansa Market (March 2017), the second-largest DNM at the time, the author analyzed around 6,000 listings across four drug categories: Weed, Hash, Ecstasy, and LSD.

Key Findings

• Reputation matters: Sellers with stronger positive feedback charge significantly higher prices for Weed, Hash, and Ecstasy.
• High transaction reliability: The probability that a seller actually delivers the ordered product ranges from 83% to 88%.
• Reputation premium: Similar to legal online marketplaces, trusted sellers earn higher prices.
• Consumer welfare varies: Buyers retain more surplus in Weed and Ecstasy markets than in Hash.
• Platform shutdown effects: The closure of AlphaBay and Hansa likely reduced scamming risks in the short term but also lowered sellers’ profits and average prices.

Main Insight

Even in illegal markets without legal enforcement, reputation systems play a powerful role in maintaining trust and preventing market collapse (similar to Akerlof’s “market for lemons” theory). DNMs function in ways surprisingly similar to legal platforms, showing that digital reputation alone can sustain relatively high levels of transaction quality.

Contribution

This research is one of the first to:

• Study reputation effects in illegal online markets
• Estimate the actual probability of scamming on DNMs
• Analyze how law enforcement shutdowns affect market outcomes

Conclusion

The study suggests that e-reputation mechanisms can successfully discipline markets—even illegal ones—by encouraging honest behavior and limiting fraud. While law enforcement shutdowns disrupt operations, reputation remains a key factor sustaining trust in these underground economies.