How signaling mechanisms reduce “lemons” from online group buying (OGB) markets? A study of China

Abstract

Purpose A major transformation in retail logistics over the few years is backed by enormous improvements in internet technologies. It is now easy for e-retailers to entertain delivery progression, or consumers can share use-experience with future customers and thereby reducing information asymmetry. The purpose of this paper is to investigate the effect of different signals on consumer behavior in the presence of information asymmetry, in the context of online group buying (OGB) markets in China. Design/methodology/approach Based on the lemon market theory (LMT) and signaling theory, the study develops a research model of the OGB consumers’ context in China, which is validated using data from an online survey. A total of 528 responses are used for data analysis applying structural equation modeling technique. Findings The findings of the study show that perceived vendor quality (PVQ) and perceived product quality (PPQ) have significantly positive effects on intention to purchase from OGB websites. PVQ is associated with perceived reputation and perceived trustworthiness (PT) of vendor, and the determinants of PPQ are quality assurance information of products, and information about mer-chants. Further, PT has a mediating effect, while asymmetry of information has a moderating effect. Research limitations/implications The research model is valid as a generic OGB model that can be investigated in other contexts to understand the generalizability of the findings. Future research is needed to incorporate additional relevant factors (e.g. price, advertising activity/investments) that may help increase the acceptability of the model to a wide range of e-commerce contexts. Two of the control variables (gender and prior internet experience) were found to be significant; this could be further examined in future studies to determine the relative impact on each causal relationship. Originality/value Whereas prior studies in the domain of consumer service proposed different signaling mechanisms that were believed to eliminate information asymmetry from a market, the study sheds light on the effectiveness of the signals in the OGB context. This is a unique effort that applies and extends LMT and signaling theory in OGB context by theorizing the associated dimensions and their causal effects.

Brand implications of advertising products with their reflections

“…According to Signaling Theory, there exists information asymmetry between buyers and sellers in a market interaction as sellers know more about their product, and that puts the buyers or the consumers at a relative disadvantage (Boulding and Kirmani, 1993;Hossain et al, 2018;Manes and Tchetchik, 2018). Particularly, in distant, pre-purchase contexts such as advertising, there remains this information asymmetry due to lack of actual product experience, in which case, consumers then rely on the observable cues that they find in brand advertisements as signals or means to resolve this information deficit (Barone et al, 2005;Boulding and Kirmani, 1993;Kirmani and Rao, 2000;Waites et al, 2020).…”

Shipping surcharges and LSQ: pricing the last mile

“…any cue that can be used to convey private or unknown information) are interpreted by targets in an attempt to reduce information asymmetry and make assessments on latent or unobservable factors of interest (Connelly et al , 2011). Signaling theory has been applied to a variety of operations and supply chain research contexts such as influencing the perceptions and behaviors of rival firms (Hofer et al , 2012), supply chain partners (Sanchez et al , 2017; Cheng et al , 2020), investors (Chowdhury and Sarkar, 2017) and e-commerce customers (Hossain et al , 2018; Li et al , 2019). Signaling theory is applicable in a prepurchase scenario in which consumers have no experience with the seller and, therefore, higher ambiguity of seller service quality (Hossain et al , 2018).…”

“…Signaling theory has been applied to a variety of operations and supply chain research contexts such as influencing the perceptions and behaviors of rival firms (Hofer et al , 2012), supply chain partners (Sanchez et al , 2017; Cheng et al , 2020), investors (Chowdhury and Sarkar, 2017) and e-commerce customers (Hossain et al , 2018; Li et al , 2019). Signaling theory is applicable in a prepurchase scenario in which consumers have no experience with the seller and, therefore, higher ambiguity of seller service quality (Hossain et al , 2018). Under such conditions where consumers lack familiarity with the seller and lack other cues to draw inferences, consumers are likely to interpret price as a signal of service quality (Zeithaml, 1988; Völckner and Hofmann, 2007).…”

Evolutionary Game Analysis of the Social Co-governance of E-Commerce Intellectual Property Protection

“…However, the inherent information asymmetry characteristics of e-commerce can make it difficult for buyers and sellers to transmit product quality information (Lee et al, 2005;Christozov et al, 2009;Hossain et al, 2021;Lu and Chen, 2021), and the buyer's quality assessment of the sellers cannot be passed on to subsequent buyers (Pan, 2011;Devos et al, 2012). This will make high-quality sellers unable to obtain sufficient market recognition, resulting in the "lemon effect" in the e-commerce market (Hossain et al, 2018(Hossain et al, , 2021, which is particularly difficult in the context of the continuous change of new information technology and software applications (Babenko et al, 2019). Information asymmetry in the field of e-commerce has become a very serious problem (Gregg and Scott, 2006;Wei and Ho, 2019).…”