On Product Uncertainty in Online Markets: Theory and Evidence

MIS Quarterly, Vol. 36, 2012

32 Pages Posted: 24 Dec 2011 Last revised: 22 Apr 2014

See all articles by Angelika Dimoka

Angelika Dimoka

Temple University - Department of Marketing and Supply Chain Management; Center for Neural Decision Making, Temple University

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business

Paul A. Pavlou

Temple University - Department of Management Information Systems; Temple University - Department of Strategic Management

Date Written: December 24, 2011

Abstract

Online markets pose a difficulty for evaluating products, particularly experience goods, such as used cars, that cannot be easily described online. This exacerbates product uncertainty, the buyer’s difficulty in evaluating product characteristics and predicting how a product will perform in the future. However, the IS literature has focused on seller uncertainty and ignored product uncertainty. To address this void, this study conceptualizes product uncertainty and examines its effects and antecedents in online markets for used cars (eBay Motors).

Extending the information asymmetry literature from the seller to the product, we first theorize the nature and dimensions – description and performance – of product uncertainty. Second, we propose product uncertainty to be distinct from, yet shaped by, seller uncertainty. Third, we conjecture product uncertainty to negatively affect price premiums in online markets beyond seller uncertainty. Fourth, based on the information signaling literature, we describe how information signals – diagnostic product descriptions and third-party product assurances – reduce product uncertainty.

The structural model is validated by a unique dataset comprised of secondary transaction data from used cars on eBay Motors matched with primary data from 331 buyers who bid upon these used cars. The results distinguish between product and seller uncertainty, show that product uncertainty has a stronger effect on price premiums than seller uncertainty, and identify the most influential information signals that reduce product uncertainty.

The study’s implications for the emerging role of product uncertainty in online markets are discussed.

Keywords: Product Uncertainty, Information Signals, Price Premiums, Online Auction Markets, eBay Motors

Suggested Citation

Dimoka, Angelika and Hong, Yili and Pavlou, Paul A., On Product Uncertainty in Online Markets: Theory and Evidence (December 24, 2011). MIS Quarterly, Vol. 36, 2012. Available at SSRN: https://ssrn.com/abstract=1976541

Angelika Dimoka (Contact Author)

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

Center for Neural Decision Making, Temple University ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://www.fox.temple.edu/minisites/neural/index.html

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://yilihong.github.io/

Paul A. Pavlou

Temple University - Department of Management Information Systems ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

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