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

Biographical notes: Yong Pan is a Professor of E-Commerce and Dean of School of E-Commerce and Logistics Management, Henan University of Economics and Law. He received his PhD in 2004 from the School of Business, Remin University of China. He visited and worked at University of Minnesota and Waseda University. He is a member of the International Society for the Systems Sciences and standing member of Council of China Academic for Information Economics. His areas of research interests include e-commerce and e-marketing. 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. Copyright © 2014 Inderscience Enterprises Ltd.