On the Market for “Lemons”: When Low Quality Does Not Drive High Quality Out of the Market

Konstantinos Giannakas and Murray E. Fulton

No 413313, Cornhusker Economics from University of Nebraska-Lincoln, Department of Agricultural Economics

Abstract: In a research article published in Nature's Humanities and Social Sciences Communications we identify the conditions under which the introduction of a low -quality product does not drive its high-quality counterpart out of the market but, instead, ends-up coexisting with it. Using a theoretical framework of heterogeneous consumers and producers in the context of a market for quality- ( or vertically-) differentiated products supplied by producers differing in their production efficiency, we show that the equilibrium quality configuration in a market depends on both the unobservability of product quality by consumers and the relative costs of producing the different quality products for different producers.

Keywords: Research; and; Development/Tech; Change/Emerging; Technologies (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nbaece:413313

DOI: 10.22004/ag.econ.413313

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