Comment by eru
6 months ago
> If you don't go after offenders then you create a lemon markets.
Btw, private markets are perfectly capable of handling 'markets for lemons'. There might be good excuses for introducing regulation, but markets for lemons ain't.
As a little thought exercise, you can take two minutes and come up with some ways businesses can 'fix' markets for lemons and make a profit in the meantime. How many can you find? How many can you find already implemented somewhere?
Well throw us bone! Can you cite robust examples where private markets deal with this gracefully? Because I can't.
An informational asymmetry that is beneficial to the businesses will heavily incentivise the businesses to maintain status quo. It's clear that they will actively fight against empowering the consumer.
The consumer has little to no power to force a change outside of regulation, since individually each consumer has asymptotically zero ability to influence the market. They want the goods, but they have no ability to make an informed decision. They can't go anywhere else. What mechanism would force this market to self correct?
Businesses with a reputation for honest dealing and good quality attract repeat business.
Why are you so pessimistic that customers can't go anywhere else?
The classic market for lemons example is about used cars. People can just not buy used cars, eg by buying only new cars. But a dealer with a reputation for honesty can still sell used cars, even if the customer will only learn whether there's a lemon later.
Another solution is to use insurance, or third party inspectors.
Listen to yourself here. Your solution is "be rich"
So what happens is you either create a cliff or you pull everything down too. Lemon markets for the poor or lemon markets for everyone. Neither is good
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This sounds exactly like what causes lemon markets in the first place. Subtle things matter and if you don't pay attention to them (or outright reject them) then that ends up with the lemon market situation.
Btw, lemon markets aren't actually good for anyone. They are suboptimal for businesses too. They still make money but they make less money than they would were it a market of peaches.
Let me give you an example: reputation can solve the 'market for lemons'.
If you build a reputation for honest dealing and high quality, then people can trust that you don't sell them lemons (ie bad used cars in the original example). This reputation is valuable, so (most) companies will try to protect it.
And that's exactly what's happening with some used car dealers.
You know, the lemon market also applies to new cars, right? And it still happens with name brands. Go read the paper, it accounts for those things.
I mean it got a Nobel prize. You really think they didn't think things through?
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