Traditional Culture Encyclopedia - Traditional virtues - What is the principle of the "lemon problem"?
What is the principle of the "lemon problem"?
The "Lemon Principle" includes the following basic ideas: ①In the market for inferior products, the two parties to the transaction have asymmetric access to information about the quality of the seller knows the exact true quality of the product, while the buyer does not know the exact quality of the product. The seller knows the exact true quality of the product, while the buyer does not. ②The participant in the transaction (in this case, the seller) can take advantage of this asymmetry of information to deceive the buyer, which is called "hidden information" and "hidden action". Hidden information will lead to "adverse selection", which means two things: first, the party who hides the information in the transaction on the interests of the other side of the transaction to the detriment of the interests of the other side; the second is the survival of the fittest mechanism of the market is distorted, the quality of the product is squeezed out of the market, while the quality of the product is poor but stay in the market, the extreme case is that the market will gradually shrink until it disappears. This is because the buyer is only willing to decide the price to pay based on the average quality he knows, this price will make the low quality sellers are willing to deal, high quality sellers due to the inability to get the price commensurate with the quality and exit the market.
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