Lemons on the web: a signalling approach to the problem of trust in Internet commerce

Asymmetric information is at the heart of situations involving trust. In the case of B2CInternet commerce, the information asymmetry typically relates to the difficulty that consumershave of distinguishing between ‘‘trustworthy’’ and ‘‘untrustworthy’’ Web merchants. Theimpasse can be resolved by the use of signals by trustworthy Web merchants to differentiatethemselves from untrustworthy ones. Using an experimental design where subjects are exposedto a series of purchase choices, we investigate three possible signals, an unconditional moneybackguarantee, branding, and privacy statement, and test their efficacy. Our empirical resultsconfirm the predictions suggested by signalling theory.