Channel conflicts and market segments between e-commerce market and traditional market: based on the adverse selection perspective

The emergence and rapid growth of electronic commerce reflects its dominant advantage under the information environment, which means that traditional markets may possibly be replaced by e-commerce market. However, the adverse selection problem significantly limits the substitution effect. Based on the classic adverse selection model (Akerlof, 1970), this paper set-up the two-market (traditional market and e-commerce market) adverse selection model to prove that the quality of uncertainty associated with adverse selection may evoke channel conflict and there is a parallel market segments between two markets. The paper obtains the conditions to complete the transaction and also obtains the equilibrium conditions of market segment between two markets. The paper tries to reveal the academic reason that the two markets will coexistence long-term chronically and present new interpretation about channel conflict between the two markets. Based on the case studies, this paper put forward the strategic suggestions under adverse selection problem according to the model.