msubsup> K = 1 T σ k × f ( K ) × p × q ; When they take honest action inn Tth transaction, their expected profit is π 2 s:

π 2 = k = 1 T σ k f ( k ) × ( p c ) × q = k = 1 T σ k × ( p c ) × q .

π 1 π 2 =

1) When discount factor σ = 1 :

When and only when T n > c p c , sellers will keep conducting honest

transactions in Tth period.

2) When discount factor 0 < σ < 1 :

π = K = 1 n 2 σ k × ( p c ) × q + σ n 1 × p q

π 1 = q × ( p c ) × 1 σ T + 1 1 σ

Let’s compare π and π 1 . When and only when 1 σ T + 1 1 σ > p p c = 1 + c p c ,

sellers will always conduct honest transactions.

3) When the number of game times tends to infinity:

When the number of game times T tends to infinity, then σ T + tends to 0. At

this point, when and only when 1 1 σ > c p c and 1 > σ > 2 c p c p c > 1 ,

sellers will choose to always conduct honest transactions.

3.4. Analysis and Conclusions

In real world of trade, Most of the mutual transactions times in market is more than twice. In repeated game, the participants are likely to sacrifice long-term interests to gain immediate interests. When there’s asymmetric information, consumers don’t know the type of the sellers. Hence, sellers are more likely to establish a good reputation to get generous profits in future. Before consciously purchasing, buyers should consider sellers’ reputation to obtain greater benefits or minimize transaction risk. In e-commerce market where there’s serious information asymmetry, reputation, as part of sellers’ value, has become a key performance indicator to decide whether buyers trade with sellers (Ma Huiming et al., 2005).

In the setting that price and cost remain unchanged, we just consider discount factor σ . It reflects both time value of the assets in e-market and sellers’ confidence in future development of e-market. Therefore, when there’s unlimited times of game, price becomes less compared with cost, discount factor becomes bigger, sellers’ expected gain becomes smaller. Therefore, the non-financial incentive effect of reputation will be weakened. Based on above analysis, we should keep market in order, boost sellers’ confidence to reduce σ , and ultimately reduce the dishonest behavior.

From another perspective, if discount factor σ is a certain value, it requires

2 σ < p c ( 0 < σ < 1 ) and the ratio of price and cost keeps above 1. Since there’s

“fixed price” trade model and sellers usually don’t have the ability to influence market price, we should consider reducing ratio of price and cost by cutting cost to have a restriction effect. Specifically, we can reduce the transaction cost by optimizing various supply chain processes in C2C E-market and by reasonable payment, distribution and communication channels.

Lastly, supervisors in market should improve the transparency of e-commerce transactions and reinforce stakeholders’ restriction for the reputation and dishonest behavior of sellers and buyers. They should also strengthen the supervision of e-market transaction and improve the legislation for e-commerce.

4. Conclusions and Enlightenment

C2C e-commerce is an emerging transactional model in the age of network economy. Over years of development by leaps and bounds, it has become an important market force. This thesis analyzes the decisions made by sellers in C2C e-commerce based on one-game model and repeated-game model. We can make the following conclusions:

1) Without taking into account reputation and other non-financial incentive factors, sellers in C2C trade market will use their information advantage to take risky actions morally in exchange for large gains in a single game period. But this will result in fraud action or no deal and inefficient equilibrium, which is not conducive to long-term stable development of the market.

2) The nature of reputation is sellers and buyers’ perception of what type each other is, based on information exchange in a long period of game. Sellers’ reputation is influenced by their previous behaviors. With more and more times of game, the impact of priori probability on sellers’ reputation is gradually reduced, sellers’ initial reputation degree becomes lower and the honest behavior will improve its reputation. Therefore, sellers can take positive actions to improve in a certain period of time.

3) In repeated game, reputation can have restriction effect on C2C sellers’ moral hazard actions. The factor which influences sellers’ action is the discount value of short-term gains and long-term gains. As long as discount value of future gains is more than the gains earned by taking moral hazard behavior, reputation can effectively suppress moral hazard behavior.

By introducing reputation effect, we should reinforce sellers’ honest action from the following aspects: 1) To keep market in order and enhance sellers’ confidence; 2) To integrate supply chain resources and reduce transaction cost; 3) To enhance the transparency of e-commerce transactions, strengthen the supervision of e-commerce transactions and improve the legislation for e-commerce.

Conflicts of Interest

The authors declare no conflicts of interest.

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