Abstract
The purpose of this chapter is to provide a basic point of theoretical analysis for the following chapters. In this chapter, we first analyze the causes of adverse selection in the Internet market, and describe the Internet ‘lemon’ problem in fact. Then, on this basis, we build a mathematical model of Internet adverse selection and verify it.
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Notes
- 1.
Although many of the products discussed in this study are physical products, in the Internet market, it must first be represented in the form of digital products, that is, in the form of virtual products. Therefore, when discussing Internet products, we should first consider its digital characteristics.
- 2.
The process of Internet auction transactions is as follows: Almost all auction websites require traders (auctioneers and bidders) to register a user name (ID) before the first transaction, and then list the auction items and relevant information of auctioneers. Bidders choose their intended auction items and participate in bidding. After winning the auction items, the bidder with the highest bidding price pays the auctioneer shop** funds at the auction price. After receiving the purchase money, the auctioneer delivers the auction items (because the two parties do not know each other in the auction, mailing becomes the most important way to deliver the items).
- 3.
In fact, the [1] model implies the assumption that all vendors are actually considered to have the same quality preference, representing m as m = 1.
- 4.
Corresponding to Akerlof model, \(t=3/2\).
- 5.
The main data of this verification comes from eBay website. The figures include an eBay auction of 225 Morgan models (stand-alone avatars) in US dollars, which took place in mid-May 2000. Such coins are chosen because their properties can be better described with relatively small errors.
- 6.
Because of the difficulty in determining the seigniorage, some companies began to provide rating services. In order to get a certain fee, the companies will have a team of professional raters, who set the level of coinage. Coins and labels indicating their grades are sealed in a plastic plate to ensure that the coins are kept in a certain state. Third-party rating agencies will provide buyers with more valuable information.
- 7.
In fact, some scholars have given other explanations about this point. For example, Scitovszky [15] thinks that consumers can use price as a sign of product quality, because higher price means that the input production factors are more expensive and the cost is higher, so the product quality is better. Frank [7] believes that when the cost of information collection is high and the cognitive processing ability is limited, consumers can only rely on price to judge the quality.
- 8.
This data is quoted from: Jeikiy [11].
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Pan, Y. (2024). Adverse Selection of Internet Market: Mathematical Model and Theoretical Explanation. In: Trust Management in the Chinese E-Commerce Market. Advanced Studies in E-Commerce. Springer, Singapore. https://doi.org/10.1007/978-981-97-1115-4_3
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