The Use of Internet Rating Services to Reduce Information Asymmetry in the Trade Industry

Bennaton, John Patrick (2006) The Use of Internet Rating Services to Reduce Information Asymmetry in the Trade Industry. [Dissertation (University of Nottingham only)] (Unpublished)

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George Akerlof introduced the concept of information asymmetry in his Nobel Prize winning paper The Market for Lemons, where he explained how problems of adverse selection can arise in markets that contain information asymmetry. Since then numerous academics have sought to explain how to overcome these problems, and have written various papers explaining how this could be done. Despite this there are still industries and markets that suffer from adverse selection problems due to information asymmetry. One such industry is the trade industry, where trade companies and professionals alike are increasingly being criticised for the quality of service that they provide, and for seeking excess profits due of the lack of consumer knowledge.

The introduction of the internet has helped to reduce these information asymmetries in many markets by providing consumers with information that they would not have had access to previously. A well known example of this is the use of feedback on the internet auction site eBay, where buyers and sellers rate each others performance after completing transactions. The aim of this project is to establish whether this principle can be applied to the trade industry to reduce the information asymmetry that is present in this market. The project hypothesises that by introducing a ratings website where buyers can rate trade companies and professionals on their ability to complete work and the quality of service they deliver, then the information asymmetry between buyers and sellers in this industry can be reduced. This would in turn reduce the adverse selection problem where poor performing trade companies and professionals are selling their services at the same prices as those companies and professionals that perform well.

The project begins with an introduction to the literature on the topics of information asymmetry, adverse selection and service quality, as well as a review of the empirical evidence that has been done prior to this research. This is followed by an explanation of the research methodology used to collect the data to be analysed in the project. A brief description of the questionnaires conducted is given, and the results that were collected are analysed. The results presented provide clear evidence that an online rating service does have the potential to reduce the information asymmetry and adverse selection problems present in the trade industry.

Item Type: Dissertation (University of Nottingham only)
Keywords: Information Asymmetry
Depositing User: EP, Services
Date Deposited: 30 Nov 2006
Last Modified: 18 Jan 2018 11:17

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