The lemon law

So shopping for a second car or product? Are you aware of something called the lemon law? Whatt????

A lemon market will be produced by the following:

Asymmetry of information

• no buyers can accurately assess the value of a product through examination before sale is made
• all sellers can more accurately assess the value of a product prior to sale

This usually applies to second hand products such as used cars where the seller would have a much specialied understanding of the product and its problems compared to the buyer.

Cheating and lack of avenues to disclose them.
An incentive exists for the seller to pass off a low quality product as a higher quality one. Sellers have no credible disclosure technology (sellers with a great car have no way to credibly disclose this to buyers)

A very good example of this would have to be Ebay where shilling occurs and is developing into a market for lemons due the the high level of information asymmetry and current systems of rating sellers that favor sellers instead of buyers.

Deficiency of effective public quality assurances (by reputation or regulation)

Don't have a current example, but an example of this would be the Indian milk market where no one could ascertain the quality of milk and thus there was no market for high quality milk as it was assumed that all milk was of low quality.
Deficiency of effective guarantees / warranties
Without guarantee, there would be less incentive to adhere to a certain level of quality.

In Pop Culture!

In "The Duel", a first season episode of CBS's How I Met Your Mother, Barney comes up with a "lemon law" for blind dates where if you didn't like the person in 5 minutes, you could end the date so no one's feelings would be hurt. It backfired when a woman sat down, and said "I'm sorry, but I'm going to have to lemon law you." Barney being Barney simply regretted not naming the idea "Barney's law."!

btw... How I Met Your Mother is one of the cooooolest shows around... So please do catch it! = D

I wanted to embed a clip of Barney mentioning the lemon law... but I was unable to find one, but still.. the clip's Legend...... DARY!

=D

Cheers,

Tau