Lemon Market Issue

Criteria for a "lemon market" from the wiki article on such things:

- no buyers can accurately assess the value of a product through examination before sale is made
- all sellers can more accurately assess the value of a product prior to sale
- An incentive exists for the seller to pass off a low quality product as a higher quality one
- Sellers have no credible disclosure technology (sellers with a great car have no way to credibly disclose this to buyers)
- Deficiency of effective public quality assurances (by reputation or regulation)
- Deficiency of effective guarantees / warranties

Every one of these criteria does not hold in the real world. If one of these criteria were to actually hold in the real world, it would represent an arbitrage opportunity that an entrepreneur could step in profit from.

For example in the used car market:

- no buyers can accurately assess the value of a product through examination before sale is made

Every used car buyer can and should have the car inspected by an independent certified mechanic, and has the free choice to not purchase used cars from sellers who do not make cars available for such inspections.

- all sellers can more accurately assess the value of a product prior to sale

False for the above mentioned reason.

- An incentive exists for the seller to pass off a low quality product as a higher quality one

Quite often false. Why? People rarely drive used cars for more than 5 years. When they decide to sell/trade in the older car for another one, who are they more likely to bring return business to? The guy who sold them a lemon or the guy who treated them fairly? Who are they more likely to recommend? Who are they more likely to badmouth?

- Sellers have no credible disclosure technology (sellers with a great car have no way to credibly disclose this to buyers)

False. Certification programs exist which are backed up by reputation and can be checked by independent inspections.

- Deficiency of effective public quality assurances (by reputation or regulation)

False, for above reasonds.

- Deficiency of effective guarantees / warranties

False; market competition drives sellers to provide guarantees and warranties. Hence used cars often come with guarantees and warranties.

All of this is not to say that lemon sellers cannot exist and persist. They can. But they cannot dominate the market; they exist at the margins. The crooked automechanic will never become rich and dominate the market. The market is dominated by suppliers that provide the best goods and services and are hence rewarded with business, repeat business, the more referals and references, and the least amount of damage to their reputations. The disreputable suppliers, who "pass off low quality merchandise as higher quality goods" are skirting the edge of, if not committing outright, fraud. They can only exist at the margins.

In fact, the "lemon market" paper was originally published in 1970. 37 years later, in the world of Carmax and innumerable certified pre-owned program, I defy you to find a person that bought a "lemon" that went to any trouble at all. This is market competition filling any gaps that may have existed in the above criteria. I have bought many used cars, never had a lemon, and have never known anyone to have bought a lemon.

The idea that "assymetric information" is somehow a market failure is ridiculous. Guess what; the people who do their homework and research and study the competing alternatives and checking out the goods will get the best deal. Time is money. Those that don't spend the time on the research to find the best deals will not get the best deals. They will pay a premium for the time the don't spend researching alternatives and shopping around. Duh. It's the market working perfectly, thank you very much.