This program runs a market in which
sellers select prices and quality "grades"
at the start of each period.
Buyers shop in a random sequence and place orders at the posted prices.
Buyers observe quality grades prior to
purchase in the full-information treatment, but quality is
not observed in the asymmetric-information treatment.
A higher grade raises seller costs and
buyer values, and the optimal grade maximizes total surplus.
 | | | | | | Deviations from this optimum can be affected by asymmetric
information (a "lemons effect"), as sellers cut quality and prices fall.
The experiment implements the market structure found
in Sherman and Holt "Classroom Games: A Market for Lemons," Journal of
Economic Perspectives, (Winter, 1999). |
Vecon Lab - April 26, 2024 |