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Ways to Counteract Information Asymmetry in Electronic Multilateral Trade: The Game-Theoretic Approach

In the modern world, due to the increasingly developing process of digitalization, economic relations are also moving into a new format, namely, the interaction of agents in the market takes the form of multilateral trade, where an electronic commercial platform acts as an intermediary. Along with the emergence of new opportunities for this type of trade and the expansion of the borders of interaction between the parties, new mechanisms and patterns of behavior of players in the transaction process arise, which differ from economic relations in offline markets. Since the seller and the buyer carry out all transactions through a virtual platform, their interaction is separated in both space and time. In turn, a seller who has complete information about the product and wants to maximize his own benefits may have incentives to hide some of the negative information about the product, which causes an uneven distribution of information in the market, and this leads to one of the most important problems in the modern economy – information asymmetry. The purpose of the article is to show the importance of the information asymmetry factor affecting price differentiation in trading on an electronic commercial platform, as well as to present a mechanism to reduce the negative effects of information asymmetry. To achieve this goal, the article uses game-theoretic modeling. Using this approach, the paper identifies a condition under which negative effects of information asymmetry occur. A situation where a seller of low-quality goods wants to overestimate the true quality of his product by hiding negative information about the product occurs if the cost of hiding negative information is lower than the difference between the prices of high-quality and low-quality goods. Nevertheless, the article shows that supplementing the model with the introduction of a mechanism for refusal and return of goods, the pressure of information asymmetry on the market will decrease, and the seller of low-quality goods will stop hiding the true quality of their products. Read more...