Abstract: Using the discrete choice model and the differentiated Bertrand- equilibrium model proposed by Berry et al.(1995)^[2] and data from Taobao.com, this paper examines the effectiveness of four signaling strategies:reputation, Buyer Protection Program, warranty services and information disclosure,by studying both the demand and the supply sides of the market. The results of demand side indicate that for the present trust mechanism in Taobao.com, the "7-Day" program in BPPs and warranty services can signal product quality. However, the "indemnity in advance" program in BPPs and reputation cannot lead to a partial separating equilibrium in the present of more effective signaling strategies. The results of supply side suggest that information disclosure can increase the probability of buyers purchase, but it cannot signal quality since it is easy for low-quality sellers to mimic the strategy of the high-quality sellers. This is the first study to analyze the mechanism and effect of signal strategies from both demand side and supply side.

Key words: trust, signal, online trading