Information asymmetry and levels of agency relationships

Abstract

Many marketing exchanges are characterized by an information asymmetry between suppliers and customers. Specifically, customers are faced with both adverse selection and moral hazard problems that involve, respectively, uncertainty about supplier characteristics and the risk of quality cheating. Drawing on prior research, the authors propose that agency problems in a customer relationship can be resolved by means of customer bonds and price premiums, which serve as signals and supplier incentives, respectively. The authors also propose that adverse selection and moral hazard problems exist in relationships between suppliers and their employees. Similar to the customer relationship, these pro..