lemon effect

Explore the factor which influence the degree of Lemon effect in online

shopping market

Group 4 Hanxiang Xie Shiqian Wang

Preface With the developing of society and upgrading of

technology, the way we shop has changed. Online shopping has now become a trendy way, compared with the traditional method of shopping, shopping online has many advantages, but there are a number of problems. For instance, the Lemon effect. As we know, there are several disadvantages of the Lemon effect, such as reduce the trade efficiency, lower the social welfare and so on. In this paper, we will use statistic method to measure the degree of Lemon effect in online market, and figure out the factor which influence the level. In the end, we will provide several feasible suggestions which could contribute to eliminate Lemon effect in the online shopping market.

Premises and assumptions

asymmetric information

Lemon effect expectation

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higher thanexpectation

bad review

average rating

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2082%

84%

86%

88%

90%

92%

94%

96%

15000

20000

25000

30000

35000

40000

45000

50000

Cell phones

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w

Exploring the relationship between the average rating and the quantity of review

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2088%

90%

92%

94%

96%

98%

100%

800

1200

1600

2000

2400

2800

3200

3600

4000

Digital Cameras

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2086%

88%

90%

92%

94%

96%

5000

15000

25000

35000

45000

55000

65000

75000

Headsets

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w


commodity cellphone digital camera headset

CORR 0.08 0.02 0.41

We could make a hypothesis that there is a positive relationship between the average rating and the quantity of review. Because the more review we make, the more effective information we will get. Plenty of effective information contribute to reducing the degree of asymmetric information, thus increasing the average rating, in other words, eliminating the Lemon effects in market.


Reason:• search cost• hardware and software

Suggestion:• comparision• more information about software• classify the review



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 204.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

0

100000

200000

300000

400000

500000

600000

700000

800000

Men's ware

ratingLinear (rating)selling


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 204.5

4.55

4.6

4.65

4.7

4.75

4.8

4.85

0

200000

400000

600000

800000

1000000

1200000

1400000

Women's ware



1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 204.3

4.4

4.5

4.6

4.7

4.8

4.9

0

50000

100000

150000

200000

250000

Suitcase


• These three pictures above are about clothing market.• The correlation coefficients of rating and selling are around 0.254,

0.249, and 0.02.• It kind of surprising that suitcases’ rating is independent from it’s

selling. Maybe people just don’t care much about the quality.


• Reason of lemon effect : For the clothing market, consumers care more about looking, which is hard to show, than qualities. Plus, the search costs are even higher because there’re much more clothing products than electronics.

• Suggestion: Not only provide picture of the models, but also give some measurements of models, so that consumers are easier to evaluate their appearance.


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2095%

96%

97%

98%

99%

0

15000

30000

45000

60000

75000

90000

105000

120000

135000

150000

Shampoos

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2092%

93%

94%

95%

96%

97%

98%

99%

0

35000

70000

105000

140000

175000

210000

Body washes

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2093%

94%

95%

96%

97%

98%

99%

0

15000

30000

45000

60000

75000

90000

105000

120000

135000

150000

Toothpastes

Score

Quantity

Rank

Aver

age

ratin

g

Qua

ntity

of r

evie

w


• These three pictures above are about personal care market.• The correlation coefficients of rating and selling are around 0.36,

0.15, and 0.18.• Since each of them matches our prediction, I won’t be chatty here.


• Reason of lemon effect: The specific effect of personal care is hard to tell. But since the products do not change overtime, the lemon effect is quite low and the overall rating is relatively higher.

• Suggestion: Build brand names with high quality goods even though it takes time. Do not provide new products too often unless you got a very valuable brand name.


Exploring the relationship between the average rating and HHI

cellphone digital camara

headphones man's ware women's ware

suitcase bodywash shampoo tooth paste4.6200

4.6400

4.6600

4.6800

4.7000

4.7200

4.7400

4.7600

4.7800

4.8000

4.8200

4.8400

0

200

400

600

800

1000

1200

1400

1600

1101.3

932.4

1361.3

780.7

1339.8

1004.8893.1

973.76 950.67

T-mall.com

weighted ratingLinear (weighted rating)HHILinear (HHI)

Cell phones Digital Camera

Headsets Shampoos Body washes Toothpastes91.00%

92.00%

93.00%

94.00%

95.00%

96.00%

97.00%

500.00

600.00

700.00

800.00

900.00

1000.00

1100.00

1200.00

JD.com

Score

HHI

Kind

Aver

age

ratin

g

HHI

• The first graph is of correlations in T-mall.com, it’s easy to see that they are negatively correlated. Actually, the CORR is -0.17. And the second one is of JD.com’s, of which the CORR is as high as 0.92.

• Why the CORR of these 2 B2C platforms are so different?• The answer is:• T-mall.com is a decentralize online shopping platform with very low entry barrier

and low quality control.• JD.com more trusted and it has higher quality control and entry barrier.


• More specifically, T-mall is more like a perfect competitive market, so the higher HHI hurts consumers for the sake of monopoly power. And JD.com is a centralize platform which monitoring the best-seller and keep their quality in a relative high level. The more one kind is sold, the more JD concern about.


Comparing JD.com and T-mall.com

• Suggestions:• Decentralize platforms like T-mall should make the brands in it to

compete more severely.• Centralize platforms like JD.com should focus more on their best-

sellers. • These are ways to improve their own consumer satisfaction, and that

is to lessen the lemon effect in online shopping.• And that’s all for our presentation, and there’re more details in our

paper. Thanks for your time!

lemon effect

Documents

degree of lemon effect

online market

online shopping market

traditional method of

expectation higher

review wer

constant purchase

trendy way