Signaling Quality on C2C E-Commerce Platforms: The Role of Price and Inspection
Working paper · in progress since June 2025
Problem
Second-hand C2C marketplaces suffer from severe information asymmetry. Sellers hold complete information about product quality, while buyers can only infer it from descriptions that may be biased and from the price they are asked to pay. With no uniform pricing mechanism and limited market supervision, buyers lack credible quality signals. The resulting adverse selection erodes trust and keeps participation low.
Some platforms have responded with product inspection services: a certification label attached before the transaction, plus authentication and an inspection report at the point of sale. Because service quality varies across providers and penetration remains limited, however, whether these mechanisms actually work is still an open question.
Approach
I build a dual-signaling game-theoretic model in which price and inspection jointly signal quality, and analyze:
- whether an inspection service can credibly transmit quality information
- how inspection interacts with price as an information channel — and whether it strengthens or crowds out price signaling
- how platforms can design contracts to improve the effectiveness of the mechanism
The goal is to characterize when inspection raises market efficiency and restores buyer confidence, and when it fails to.