Read the paper “Asymmetric Information, Adverse Selection and Online Disclosure:
ID: 1217808 • Letter: R
Question
Read the paper “Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors” available in the Learning Materials folder (scroll down to the bottom). Respond to the following questions: a. When you, as a consumer, buy used goods online (or think about buying online) are you sure that the purchased item will have the quality advertised by the seller? Explain. b. How does Ebay create value? Explain. c. What potential contracting problems exist on Ebay and how does eBay address these problems? d. What is the main principle-agent problem that occurs in used goods online markets that the paper is referring to? Describe the problem in detail. e. What is the main theory (or hypothesis) that the author proposes which helps buyers and sellers transact online? f. How does the author make sure that the differences in observed transaction prices are due to differences in the quality of the cars sold? Explain.
Explanation / Answer
a. If products are purchased from good and reliable websites there are high chances that the purchased item will have the quality advertised by the seller.
b. e-bday reaps benifit by bring sellers and buyers on the same platform where sellers can sell and buyers can purchase the goods. If e-bay delivers good quality products and does not cheats customers then it can develop the feeling among the customers about the product safety and earn more money.
c. The following contracting problems may arise on e-bay.
1.. Selling of illegal , banned or stolen products by some fraud sellers.
2. Cases of non-shipment or non-payment.
3. long delivery schedule of the product.
The problem can be addresses by providing insurance to sellers.
d. There is more of a problem of adverse selections as buyers do not fully reveal the condition of their cars.
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