Authentication and Compensation in E-commerce

Abstract

The rise of counterfeit goods and defective product delivery sold on the Internet has become a major problem. Accordingly, e-commerce companies introduce authentication and reimbursement services. We investigate the e-commerce marketplace provision strategies. The first strategy is for the platform operator to offer the two channels of full and weak authentication. The second strategy is to provide weak authentication that can be reimbursed in case of any problem, while also offering the full authentication service. We also present a strategy of nonauthentication that can be compensated in case of problems, in addition to full certification. We find that the revenue and consumer surplus from the first strategy are equal to the second strategy. We show the strategy of reimbursable nonauthentication and full authentication dominates the first two strategies in profit and consumer surplus depending on the condition, and vice versa. If a discount factor to certification resides between a certain range, the first two strategies give more profit to the platform. We also find that when the basic valuation is low, the first two strategies increase consumer surplus. As for social surplus, the larger the full and weak certification costs, and the smaller the gap between the costs, third strategy dominates the first two strategies.