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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