Electronic Commerce

1. Electronic Commerce Quality Uncertainty and Market Efficiency

2. The lemon problem • Akerlof (1970) (one of winners of 2001 Nobel economic prize) • Unrevealed information about used cars (the lemon cars) • Those low-quality used cars were sold in the prices higher than their actual values. • Lacking of the detective capability to discover the truth • Adverse screening in banking • Those who go for credit are short of money, why would the banks loan to them? The bank merely loaned capital to the affordable people. • Those who are in the serious financial straits unfortunately went to the covert private bank with more higher interest burden. • Other cases • Senior (veteran) vs. junior (a green hand)

3. The market mechanism • Markets fail! No! • The market of lemon cars • Try out, a returnable term • Promise and guarantee commitment • The banking system • Raise the interest rate for incredible loaners • Credit reference and investigation • Dynamic interest rates of loan • The discriminatory pricing

4. Quality signaling in the market • Price • Schumalensee effect • The firm’s reputation, The size of market share • Experience, Middlemen (commitment of third parties, retailers, brokers, infomediaries) • Costs for developing quality signal • Imitation, rip-off, fake • Incentive for revealing quality information • Raise prices higher for more returns

5. Some social/economic phenomena about signaling failure • 濫竽充數, 混水摸魚 • 楚材晉用, 懷才不遇 • 魚目混珠 • Corresponding mechanisms?

6. Online signaling mechanisms • Try-out strategy • Freeware • Shareware • Help users recognize the preference and valuate the willingness to pay • Possibility of discrimination • Segmentation

7. The try-out economics If the cost bottom line is higher, then to sell at $1000 to high-type with try-outs. If the cost bottom line is lower, then to sell at $750 to all without try-outs.

8. The efficiency of market • Transaction cost • Searching cost • Bargaining cost • Contracting/drafting cost • Enforcement/monitoring cost • Measurement cost • Bonding/safeguarding/punishing cost Facilitating signals?

9. Functions of invisible hand— the price mechanism • Competition from sellers—reveal the bottom line of cost • Competition from buyers—reveal the upper bound of willingness to pay • Auctioning mechanism • Doubt auctions approximate toward to perfect competition

10. The role of intermediary • As facilitators (matching & aggregating) • As experts (specific time and space knowledge) • As credible information sources (screening the cheating suppliers for preventing themselves from reputational spillover) • As producers (packaging and customization services)

11. Quality assurance by intermediary • Subcontracting system • Competitive bidding • Long-term just-in-time system • Cf. Japan auto firms vs. U.S. GM/Ford • Incomplete contracting • The futurity depends on the current performance • Microproducts and micropayments • A form of incomplete contracting directly used between producers and end users, i.e., charging by each usage and punishment by termination