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Lemons on the Web: A Signalling Approach to the Problem of Trust in Internet Commerce

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    Asymmetric information is at the heart of situations involving trust. In the case of B2C Internet commerce, the information asymmetry typically relates to the difficulty that consumers have of distinguishing between "trustworthy" and "untrustworthy" Web merchants. The impasse can be resolved by the use of signals by trustworthy Web merchants to differentiate themselves from untrustworthy ones. Using an experimental design where subjects are exposed to a series of purchase choices, we investigate three possible signals, an unconditional money-back guarantee, branding, and privacy statement, and test their efficacy. Our empirical results confirm the predictions suggested by signalling theory.

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    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp04-10.

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    Length: 29 pages
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:uow:depec1:wp04-10
    Contact details of provider: Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
    Phone: +612 4221-3659
    Fax: +612 4221-3725
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    1. Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
    2. Wiener, Joshua Lyle, 1985. " Are Warranties Accurate Signals of Product Reliability?," Journal of Consumer Research, University of Chicago Press, vol. 12(2), pages 245-50, September.
    3. Li, Zhan G. & Gery, Nurit, 2000. "E-tailing--For all products?," Business Horizons, Elsevier, vol. 43(6), pages 49-54.
    4. Ippolito, Pauline M, 1990. "Bonding and Nonbonding Signals of Product Quality," The Journal of Business, University of Chicago Press, vol. 63(1), pages 41-60, January.
    5. repec:tpr:qjecon:v:87:y:1973:i:3:p:355-74 is not listed on IDEAS
    6. Price, Lydia J. & Dawar, Niraj, 2002. "The joint effects of brands and warranties in signaling new product quality," Journal of Economic Psychology, Elsevier, vol. 23(2), pages 165-190, April.
    7. Boulding, William & Kirmani, Amna, 1993. " A Consumer-Side Experimental Examination of Signaling Theory: Do Consumers Perceive Warranties as Signals of Quality?," Journal of Consumer Research, University of Chicago Press, vol. 20(1), pages 111-23, June.
    8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    9. repec:tpr:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
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