Influence of Informed Buyers in Markets Susceptible to the Lemons Problem

Philippe Mahenc

American Journal of Agricultural Economics, 2004, vol. 86, issue 3, 649-659

Abstract: It is shown that the presence of informed buyers is necessary but not always sufficient for producers to use prices as signals of product quality. A sufficiently high fraction of informed buyers eliminates the lemons problem. A small fraction of informed buyers mitigates the lemons problem, provided that buyers' prior belief of high quality is sufficiently pessimistic: price reveals high quality at a signaling cost which increases with market power. However, if buyers' prior belief of high quality is optimistic when the market is poorly informed, then the lemons problem is not overcome. Copyright 2004, Oxford University Press.

Date: 2004
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Working Paper: Influence of Informed buyers in markets susceptible to the lemons problem (2018)
Working Paper: The Inuence of Informed Buyers in Markets Susceptible to the Lemons Problem (2004)
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