Asymmetric information in online markets

Abstract

The Internet has provided possibilities to place products and serv ices for sale regardless of geographical factors. People can enter the market and advertise products anonymously, and buyers have to screen potential sellers by observable information. Lack of perfect information results in uncertainties in the markets that may cause imperfect market outcomes.

This literature review examines uncertainties that occur in online markets provided by a third party. In this paper, it will become apparent for the reader that information asymmetries appear in markets where physic al limitations prevent agents from perfectly examining products before purchase. I am going to show a different kind of uncertainty mitigators and their effectiveness on information asymmetry. This paper will explain why some signals are beneficial and others are not. In the end, an examination of the empirical study is going to prove that physical limitations have an impact on prices. This paper also shows that buyers do use fairly efficient ly information that is available at a low cost. Therefore, features that determine online transactions lie pressure over third-parties and sellers to convey all the needed information cost-effectively for themselves and buyers.