Product Quality, Consumer Information and "Lemons" in Experimental Markets

Abstract

This paper reports on the behavior of experimental markets wherein buyers were ignorant (unless truthfully informed by sellers) of the quality of the product purchased. True quality of the product was learned only after the sale. Sellers chose quality or "grade" and higher quality was more costly to produce. Our experimental markets were characterised by asymmetric information possessed by buyers and sellers who traded a pure "experience" good whose quality was endogenously determined.

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