The Lemon Principle

Paper Summary:

This paper explains that a "lemon" in an economic market refers to a product of lower than expected quality that is sold at the same price as the normal, higher quality products, and that a "lemon market", which is when a certain market is known to contain lemons, can cause enough damage to the market to cause it to cease to exist. The paper further explains how the information about the product that the buyer and the seller possess can affect the success of the product and whether the lemon principle will come into play.

From the Paper:

"From an economic perspective, if the quality of a product cannot be observed first -hand, the buyer uses market statistics to determine the quality of products that are available. This however also can cause a "lemon market", since returns for quality go to the entire group of marketers, instead of just one. Here however the problem is also that an excess of "lemons" causes the average quality of goods to deteriorate, and thus the market size also deteriorates until, as mentioned above, it ceases to exist at all.
Asymmetric Information. Asymmetric information refers to an imbalance in the knowledge possessed by buyers and sellers. Buyers know the quality of their products, i.e. whether they are "lemons" or not, and sellers do not. Because of low buyer confidence as well as a lack of seller integrity, this phenomenon can also lower the quality of products. This is then a disadvantage for all consumers who make use of the relevant market."

More papers on The Lemon Principle:

• Analytical Essay # 31394 : "The Lemon Orchard"
• Essay # 137672 : "Issues with the "Harm Principle"
• Book Review # 6470 : "Beyond the Pleasure Principle"

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