Abstract: The intensified competition resulted from increased sellers in the internet transaction market will influence the effectiveness of the third party mark as a signal transmission mechanism. It is found through the analysis of both the separating equilibrium and the pooling equilibrium in bilateral monopoly and competitive market in the theoretical framework of signal transmission that the intensified competition has exerted heterogeneous influence on the effectiveness of the third party marks. When the difference of one buyer’s willingness-to-pay towards different sellers is higher than the marked cost of the honest sellers but lower than the marked cost of the speculative sellers, the intensified competition will damage the effectiveness of the third party marks. However, when the difference between the marked costs of different sellers is relatively larger, but lower than the difference between the willingness-to-pay of the buyers, the effectiveness of the third party mark will increase first and decrease later along with the intensified competition. The above conclusion is empirically supported by the empirical analysis and effectiveness comparison of various mainstream third party marks on the internet transaction of Taobao under the different competitive environments.

Key words: third party mark; signal transmission; competition; online transaction