Buy and lemon market effect

Fake Day shuttle, fake Nike, a hot-hit group buying site recently began to suffer consumer criticism. At the same time, the group buying model itself is also beginning to be questioned, losses, layoffs, closures, once the most risky capital of the group buying site is now facing the industry's bankruptcy crisis.

The reason why there is such chaos, one of the reasons is that in the actual commercial operations, in order to maximize their interests, many of the group buy site does not strictly audit the suppliers, which led to fakes, false lifting prices, not shipping and other phenomena occur repeatedly, seriously damaging the interests of consumers.

The bargaining chip that buys to attract the consumer is low price. Quantity discounts since ancient times, but the internet has given consumers the convenience of aggregation, thereby improving the overall bargaining power of the consumer group, its essence is two-level price discrimination, that is, according to sales prices.

However, one of the phenomena we can see is that the most common of group buying is service or non-standard products. For standard products (such as 3C, computers, communications, and consumer electronics), Groupon in the United States, as well as China's handle, the United States, litters group, such as group purchase sites, are rarely seen. The root cause is that group buying dramatically changes the psychological reference price (Reference prices). Once people use 30 yuan to buy a originally sold a U disk of 100 yuan, and then want to sell the U disk to more than 50 yuan is not possible, unless consumers feel that the goods are different. Changing the physical properties of a product is difficult, and changing the properties of the service, so that consumers feel different, but not difficult.

Such a long time down, in the case of asymmetric information, the merchant will be inferior goods to replace good goods, gradually good goods are eliminated, and the inferior goods will gradually occupy the market, thus replacing good goods, resulting in the market are inferior goods.

In economics, this is the lemon market (Lemon harsh) effect. "Lemon" means "defective" or "useless" in American slang. When the seller of the product has more information than the buyer on the quality of the product, or because the trading party does not know the real value of the goods, only through the average price in the market to judge the average quality, for the business, the provision of good goods will suffer the natural loss, the provision of bad goods can benefit. As a result, good merchandise will gradually exit the market, and low-quality products will continue to expel high-quality products, then the lemon market will appear.

For example, a hot pot shop on the group buying site at a price below the cost price (40 percent) to attract consumers, will inevitably result in the provision of services or the quality of the product shrinkage, and competitors have to reduce prices and also provide poor products or services, and ultimately lead to group buying site to become a poor quality of goods or services gathered.

In this case, consumers will think that the goods on the market are bad, even in the face of a high price of good goods, will be skeptical, in order to avoid being cheated, finally choose bad goods. In extreme cases, the market will stop shrinking and non-existent, which is the adverse selection in information economics.

1970, the 31-Year-old famous economist George Ackerroff published the "Lemon Market: Quality uncertainty and market mechanism" of the paper, creating a reverse choice theory precedent. With the paper, he won the Nobel Prize in Economics for 2001 years.

The controversy over whether a big discount for group buying is a sustainable business model is hotly debated in business and academia, but there is no conclusion. Recently, Wall Street investors or mass consumers began to watch the site, but the business model if it can be regulated by the market mechanism, still show strong vitality.

In the next few years, how to bring the user experience to the extreme and improve the user trust will become the most important survival skills of the major group buying site. An effective way to improve the user experience and conversion rate is the application of personalized technology. Personalized technology can not only help the group purchase site for each user to provide a truly suitable for his products, will also integrate every user in the social network as well as on the basis of geographical external behavior data, through multi-channel user behavior and build a comprehensive user profile, for group buying users to achieve ubiquitous personalized intelligent recommendations.