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

Author

Listed:
  • Konstantinos Giannakas

    (University of Nebraska)

  • Murray Fulton

    (University of Saskatchewan)

Abstract

Akerlof’s “Lemons” paper provides a seminal economic result suggesting that, in markets with asymmetric information where product quality is unobservable by consumers prior to purchase and use, the introduction of a low-quality product will drive its higher quality counterpart(s) out of the market. In this paper we identify some empirically relevant cases/conditions under which the introduction of a low-quality product does not drive its higher quality substitutes out of the market but, instead, ends-up coexisting with them.

Suggested Citation

  • Konstantinos Giannakas & Murray Fulton, 2020. "On the market for “Lemons”: quality provision in markets with asymmetric information," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-6, December.
    • Handle: RePEc:pal:palcom:v:7:y:2020:i:1:d:10.1057_s41599-020-00658-w
    DOI: 10.1057/s41599-020-00658-w
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    References listed on IDEAS

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    1. Murray Fulton & Konstantinos Giannakas, 2004. "Inserting GM Products into the Food Chain: The Market and Welfare Effects of Different Labeling and Regulatory Regimes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 42-60.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    3. Konstantinos Giannakas & Amalia Yiannaka, 2008. "Market and Welfare Effects of Second-Generation, Consumer-Oriented GM Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(1), pages 152-171.
    4. Auster, Sarah & Gottardi, Piero, 2019. "Competing mechanisms in markets for lemons," Theoretical Economics, Econometric Society, vol. 14(3), July.
    5. Jayson L. Lusk & Jutta Roosen & Andrea Bieberstein, 2014. "Consumer Acceptance of New Food Technologies: Causes and Roots of Controversies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 381-405, October.
    6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    7. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    8. Nicholas Kalaitzandonakes & Peter W.B. Phillips & Justus Wesseler & Stuart J. Smyth (ed.), 2016. "The Coexistence of Genetically Modified, Organic and Conventional Foods," Natural Resource Management and Policy, Springer, number 978-1-4939-3727-1, March.
    9. Zelin Zhang & Kissan Joseph & Ramanathan Subramaniam, 2015. "Probabilistic Selling in Quality-Differentiated Markets," Management Science, INFORMS, vol. 61(8), pages 1959-1977, August.
    10. Scott Fay & Jinhong Xie, 2008. "Probabilistic Goods: A Creative Way of Selling Products and Services," Marketing Science, INFORMS, vol. 27(4), pages 674-690, 07-08.
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