How to counteract negative effect of adverse selection in Chinese e-commerce market? Comparative analysis on credit scoring system and guarantee system of TAOBAO Online publication date: Tue, 25-Oct-2016
by Yong Pan
International Journal of Services Technology and Management (IJSTM), Vol. 22, No. 6, 2016
Abstract: The adverse selection problems brought by information asymmetry have negative impact on e-marketing and reduce the efficiency of the online transaction. Now some trading online platforms are seeking ways to reduce adverse selection. Widely used approaches are credit scoring system and guarantee system. This paper takes transaction data from U disk market in TAOBAO as samples and analyses the role of these two systems. The results showed that the credit scoring system and guarantee system can effectively counteract negative effect from the adverse selection problems. Although the credit scoring system has a significant impact on transaction volume; guarantee system has greater impact on the trading volume than the credit scoring systems. In addition, these two systems are not substituted but have complement for each other. In the case of the existence of the guarantee system, consumers' option is still subject to the impact of the credit scoring system.
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