E-marketing under the adverse selection environment: model and case study

Abstract

Information asymmetry in the e-commerce market causes an adverse selection phenomenon ('lemons' problem) that has a negative impact on e-marketing. Based on the classic adverse selection model, this paper set up e-marketing models. The models fully took into account the qualitative preference of e-consumers and the role of quality intermediaries under adverse selection environments. Actual data from Taobao serves as a case study to analyse the characteristics of adverse selection. The results show that reputation evaluation systems and business alliance system can reduce the adverse selection problem in e-commerce market. The quality intermediary as a trusted third party or market quality expert can help eliminate cyber lemons. However, along with the e-marketing strategy counteracting adverse selection, there are some phenomena strengthening consumers' distrust. This may result in a vicious cycle and affect the function of e-marketing. This paper analyses the existing issues and suggests solutions to enable e-sellers and e-buyers to trade credibly.