Quality Management through Electronic Markets Intermediaries

If goods or services in a market vary in quality and the consumer has due to information asymmetry no means to differentiate providers of high quality from providers of low quality, the market can become a ‘lemon market’. This term was introduced by Akerlof to characterise markets where providers of bad quality drive out providers of good quality, creating cost of dishonesty and market failures. In electronic markets this problem can worsen. The reasons are mainly the separation of product and information flow, limited means of presentation and low entry barriers for providers. Intermediaries have the potential to address this problem by institutionalising quality management functions. Quality management can avoid market failures, ensure efficient allocation and extend the scope of electronic markets to more complex business scenarios as observable in today’s commodity markets. On the basis of two case studies, eBay and AUCNET, this paper structures and discusses quality management functions that intermediaries and other agents can provide. The object of quality management can be the product itself or trading information about the product. Quality management comprises the setting of quality goals, monitoring quality and depending on the object of quality management and the performing agent, improving quality (TQM) or reducing quality uncertainty (with brand building, guarantees etc.). In the future, advances in the area of electronic product presentation as well as support for electronic negotiating and contracting could further extend the possibilities to reduce quality uncertainty issues in electronic markets thus eliminating the risk of lemon markets and creating the trust necessary for complex electronic commerce scenarios.