Lemons Market: Introduction

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 - November 23, 2014