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

Index

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

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