I am sure you are familiar with online auction and sales sites like Ebay or Etsy....

I am sure you are familiar with online auction and sales sites like Ebay or Etsy. How do they address the adverse selection problems?

Expert Solution

As per the definition of adverse selection it is a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality , so it a situation of asymmetric information . One party has more material knowledge than other party in the economic transaction . Auction and sales sites like Ebay are the sellers here who have more know product knowledge than any buyer . Firstly auctioning online helps the seller to know about the reservation price of a buyer which is a hidden information for the seller . Online auctioning brings together large number of buyers which initiates frequent bidding and more competition among buyer .

After sales services provided by such online sites , other facilities like product description and customer reviews provided on the site , customer service and proper receipt of warranty periods address thses adverse selection problems faced by buyers .

Rahul Sunny answered 1 year ago

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