Quality Differentials and Prices: Are Cherries Lemons?

Robert Rosenman and Wesley Wilson

Journal of Industrial Economics, 1991, vol. 39, issue 6, 649-58

Abstract: In G. A. Akerlof's market for lemons, goods of differential qualities sell under the same standard. If no price differentials exist, then the low quality goods drive out the high quality goods. In cherry markets, heterogeneous lots of cherries sell within the same market standard. At the time of sale, buyers know only the market standard. Since different qualities sell under the same standard, the potential for lemons exists if buyers cannot identify different qualities. The authors' theoretical and empirical models suggest seller characteristics signal quality to buyers, and buyers pay premiums to firms with these characteristics. Thus, cherries are not lemons. Copyright 1991 by Blackwell Publishing Ltd.

Date: 1991
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