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On the market for "Lemons": quality provision in markets with asymmetric information

Economics

On the market for "Lemons": quality provision in markets with asymmetric information

K. Giannakas and M. Fulton

Discover the intriguing dynamics of product quality in markets influenced by asymmetric information! Conducted by Konstantinos Giannakas and Murray Fulton, this research unveils the conditions that allow low- and high-quality products to coexist, challenging the common belief that low-quality always prevails. Dive into the insights derived from a simple yet powerful model.

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Playback language: English
Abstract
Akerlof's "Lemons" paper suggests that in markets with asymmetric information, low-quality products drive out higher-quality counterparts. This paper identifies conditions where low- and high-quality products coexist. A simple model shows that equilibrium quality depends on unobservable product quality and relative production costs. Four scenarios emerge, two of which show coexistence of low- and high-quality products.
Publisher
Humanities & Social Sciences Communications
Published On
Dec 14, 2020
Authors
Konstantinos Giannakas, Murray Fulton
Tags
asymmetric information
product quality
coexistence
economic model
market dynamics

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