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https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons
by jonathankoren 8y ago
https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons
- darkerside 8y agoI'm sure that's partly true, but it doesn't seem to account for the lack of alternatives to selling a used car. A car offers no utility, and yet continues to depreciate, sitting in the garage. Assuming you want or need to participate in buying/selling a car for life reasons (growing family, moving houses, or moving upmarket into just vehicles), how else do you class back any value from this asset? Other alternatives (donation, trade-in) aren't going to get you even lemon prices in return.
- jonathankoren 8y agoI don’t understand. If you sell the car, you get money which has the maximum utility, because you can trade it for other things. Donating and trading are essentially selling, so what would an alternative that provides positive utility look like?
- darkerside 8y agoThey are alternatives to selling, but you typically receive less money than you would in a straight sale. I think I'm asking the same question as you. > Given the fixed price at which buyers will buy, sellers will sell only when they hold "lemons" (since plemon < pavg) and they will leave the market when they hold "peaches" (since ppeach > pavg). My point is that this is a highly idealized and theoretical model. Life doesn't work this way.
- jonathankoren 8y agoI would argue that the alternatives you've listed (e.g. donation), are functionally equivalent to selling. You're trading a good (the car), for money. > My point is that this is a highly idealized and theoretical model. Life doesn't work this way. Such is every nonbehavioral economics paper ever written.
- darkerside 8y agoYou're missing my point. Those alternatives typically provide you LESS money than selling. How are people supposedly "leaving" the market? Parking an unused car on the street?