Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68880
Authors: 
Fabel, Oliver
Lehmann, Erik E.
Year of Publication: 
2000
Series/Report no.: 
Diskussionsbeiträge: Serie 1, Fachbereich Wirtschaftswissenschaften, Universität Konstanz 302
Abstract: 
Adverse selection induces economic limits to market substitution. If quality uncertainty persists in both internet and traditional marketplaces, a second-best equilibrium with parallel market segments may arise. Positive trade in parallel segments implies that the information cost advantage of one marketplace is exactly offset by a more severe adverse selection problem associated with non-observable quality variables. The electronic marketplace providing dominant search means contains all segments, while the traditional market may lack some segments. These missing segments are characterized by low quality expectations given the vector of advertised quality signals. The analytic results are confirmed by an empirical investigation of used-car trade. Thus, the study also provides an estimate of the price differential between the electronic and the traditional marketplace.
Subjects: 
E-Commerce
market substitution
adverse selection
efficient search and learning
JEL: 
M21
L1
D82
D83
Document Type: 
Working Paper

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