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How can we reduce information asymmetries and enhance trust in ‘The Market for Lemons’?

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  • Liudmila Zavolokina

    (University of Zurich)

  • Manuel Schlegel

    (University of Zurich)

  • Gerhard Schwabe

    (University of Zurich)

Abstract

The used car market is characterized by information asymmetries and mistrust. Blockchain technology promises to resolve these problems using a system which stores data over the life cycle of a vehicle. However, while blockchain technology is strong in preserving the stored information, sense-making of this information is still essential to bring value to end consumers of the system. In this paper, we take an exploratory approach and create a prototype, which is then evaluated in realistic car sale conversations between buyers and sellers. We demonstrate and discuss how the interplay of different design elements of an application, built on top of a blockchain-based platform, helps to reduce information asymmetries and enhance trust. Our findings suggest that though providing more information about a used product (a car) leads to fewer information asymmetries in general, a reputation mechanism and data analysis are both beneficial in improving the situation further. As for trust, such a system enhances trust between buyers and sellers and, in general, makes the overall purchase process more trustworthy. However, to achieve these positive effects, the quality of the stored information should be guaranteed and properly communicated to the end-user.

Suggested Citation

  • Liudmila Zavolokina & Manuel Schlegel & Gerhard Schwabe, 2021. "How can we reduce information asymmetries and enhance trust in ‘The Market for Lemons’?," Information Systems and e-Business Management, Springer, vol. 19(3), pages 883-908, September.
    • Handle: RePEc:spr:infsem:v:19:y:2021:i:3:d:10.1007_s10257-020-00466-4
    DOI: 10.1007/s10257-020-00466-4
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    References listed on IDEAS

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    1. Benedikt Notheisen & Jacob Benjamin Cholewa & Arun Prasad Shanmugam, 2017. "Trading Real-World Assets on Blockchain," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 59(6), pages 425-440, December.
    2. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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