What prevents electronic lemon markets?

It is well known that the "lemon" problem can cause market failure. Because difficulties in quality discovery of nonstandardized and complex products will increase transaction costs, it was predicted that the "electronic market" would prevail only with less complex and more standardized goods. However, it has been observed that there are many successful electronic (auction) markets for seemingly typical "lemon" goods such as used cars, raw minerals, and agricultural products. It is argued that in such markets, the equilibrium price of electronic trading appeared higher than in the nonelectronic market. Many speculative explanations have been offered for this, but to the best of our knowledge, no analytical studies have been presented. This study is an attempt to fill this gap. In this paper, we look at the problem of quality discovery in the electronic trading of physical goods especially when the goods are not standardized. The information asymmetry between buyer and seller creates the possibility of a "lemon" in the nonstandardized market. To mitigate this problem, several auction markets have devised third party quality grading systems and limited auctions to only relatively higher quality products. Through analytical modeling, we rationalize these mechanisms; that is, the intervention of an impartial third party for quality inspection, market segmentation by quality measure, and the sellers' willingness to pay the cost of quality inspection.
Publisher
LAWRENCE ERLBAUM ASSOC INC-TAYLOR FRANCIS
Issue Date
2007
Language
ENG
Keywords

ADVERSE SELECTION; DATA INTERCHANGE; PERCEIVED RISK; INTERNET; AUCTIONS; MODEL; EXTERNALITIES; INFORMATION; INSIGHTS

Citation

JOURNAL OF ORGANIZATIONAL COMPUTING AND ELECTRONIC COMMERCE, v.17, no.3, pp.217 - 246

ISSN
1091-9392
DOI
10.1080/10919390701436374
URI
http://hdl.handle.net/10203/4722
Appears in Collection
MT-Journal Papers(저널논문)
  • Hit : 517
  • Download : 59
  • Cited 0 times in thomson ci
This item is cited by other documents in WoS
⊙ Detail Information in WoSⓡClick to seewebofscience_button
⊙ Cited 4 items in WoSClick to see citing articles inrecords_button

qr_code

  • mendeley

    citeulike


rss_1.0 rss_2.0 atom_1.0