Case application of lemon market theory, lemon market theory

The lemon market effect refers to the fact that in the case of incorrect information, good goods are often eliminated, and inferior products will gradually occupy the market, thus replacing good goods, resulting in inferior products in the market.

The lemon market, also known as the defective market, refers to the market ridge of information asymmetry, that is, in the market, the seller of the product has more information about the quality of the product than the buyer. In extreme cases, the market will stop shrinking and non-existent, which is the adverse selection in information economics.

The famous economist George Akerrov wrote in an article about"Lemon Market"He won the Nobel Prize in Economics in 2001 and laid it out along with two other economists"Asymmetric informatics"The foundation.

The lemon market, also known as the defective market, refers to the market with information asymmetry, that is, in the market, the seller of the product has more information about the quality of the product than the buyer. In extreme cases, the market will stop shrinking and non-existent, which is contrarian selection in information economics. Akerov in his published book "Lemon Market:

The Uncertainty of Product Quality and Market Mechanism" cites a case study of the second-hand car market. It is pointed out that in the used car market, it is clear that the seller has more information than the buyer, and the information between the two is asymmetrical. The buyer will certainly not believe the seller's words, even if the seller says it is fanciful.

The only way for buyers to do so is to depress ** to avoid the risk loss caused by information asymmetry. The buyer's low ** also makes the seller unwilling to provide high-quality products, so that low-quality products flood the market, high-quality products are driven out of the market, and finally lead to the contraction of the second-hand car market.

The existence of the lemon market is due to the fact that one party does not know the true value of the commodity, and can only judge the average quality by the average ** in the market, and because it is difficult to distinguish between good and bad goods, it is only willing to pay the average **. Since there are good and bad goods, for the average **, providing good goods will naturally suffer, and those who provide bad goods will benefit. As a result, good goods will gradually be withdrawn from the market.

As a result of the decline in average quality, the average ** will also fall, and the real value of the goods above the average ** will gradually withdraw from the market, and finally only the bad goods will remain. In this case, consumers will think that the goods on the market are all bad, even in the face of a good product, they will be skeptical, in order to avoid being deceived, and finally choose bad goods. This is how the lemon market behaves.

A prime example of the lemon problem is the used car market:

The buyer does not know the quality of each car, but knows the quality distribution of the car market. Let's say there are three cars in the car market, **: 0, 5, 10.

First of all, the customer is willing to spend 5, so the owner of the 10 is out of the market;

After that, based on the distribution of market quality, customers will only be willing to spend. As a result, the owner of the ** for 5 withdrew from the market;

In the end, the customer's willingness to spend will drop to zero, and only the worst cars will remain in the market.

Economics

The famous economist George Akerrov won the Nobel Prize in Economic Sciences in 2001 for an article on the "lemon market", so the "lemon market" is the study of economics.

Lemon is the American slang term for "defective product" or "something that is not useful." See Akerloff's 1970 book "The Lemon Market: Quality Uncertainty and Market Mechanisms".

The lemon market is mentioned in the analysis of information asymmetry to illustrate that adverse selection leads to market inefficiencies and market failures.

The lemon market is a defective market. Take, for example, the labor market. In the case of information asymmetry, employers are only willing to pay the minimum wage, so only those workers who are less productive are willing to work.

It's really a balance that doesn't work as efficient. If the information is symmetrical, the employer knows everyone's ability to work and provides the corresponding wage, then everyone is willing to work, so that productivity can be shouted and maximized.

The so-called second-hand market is just a special case of the lemon market. For example, you can recognize the brand of a new product, and the manufacturer can provide quality assurance, reducing the asymmetry of information. In the second-hand market, they are all second-hand goods, and just looking at the brand does not guarantee that what you buy will be ***.

In the second-hand market, the information is very asymmetrical, so people who buy things are only willing to pay the lowest **. And if it is low, only those things with poor quality will be willing to sell.

The lemon market effect refers to the fact that in the case of information asymmetry, good goods are often eliminated, and inferior products will gradually occupy the market, thereby replacing good goods, resulting in inferior products in the market. The famous economist George Akerrov won the Nobel Prize in Economic Sciences in 2001 for a paper on the lemon market and laid the foundations of asymmetric informatics with two other economists.