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The Market for 'Lemons': Quality Uncertainty and the Market Mechanism" [1] is a widely cited seminal paper in the field of economics which explores the concept of asymmetric information in markets. The paper was written in 1970 by George Akerlof and published in the Quarterly Journal of Economics .
"The Market for Lemons" and asymmetric information [ edit ] Akerlof is perhaps best known for his article, " The Market for Lemons: Quality Uncertainty and the Market Mechanism ", published in the Quarterly Journal of Economics in 1970, in which he identified certain severe problems that afflict markets characterized by asymmetric information ...
Only "lemons" (used cars in bad conditions, specifically with value at most equal to p) are traded Player 1 can guarantee herself a payoff of zero by bidding zero; hence, in equilibrium, p = 0 Since only "lemons" (used cars in bad conditions) are traded, the market collapses
Created Date: 8/30/2012 4:52:52 PM
The discussion of information asymmetry came to the forefront of economics in the 1970s when Akerlof introduced the idea of a "market for lemons" in a paper by the same name (Akerlof 1970). In this paper, Akerlof introduced a fundamental concept that certain sellers of used cars have more knowledge than the buyers, and this can lead to what is ...
The most common example of the Lemons Market is in the automobile industry. As suggested by Akerlof , there are four car types that a buyer could consider. [ 17 ] This includes choosing either a new or used car, and choosing a good or bad car, or Lemon as it is more commonly known.
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The lack of transparency by using historical cost accounting may make matter worse. It is possible the market reacts more extremely if the fair-value or current market prices are not disclosed. There is no empirical evidence that using historical cost accounting will calm the investors. [8]