Do you know the secret of lemon market?


Lemons are considered defective in some languages. As a result, the lemon market has become a place where many defective products are stored. In fact, the lemon market is a very asymmetric market in terms of information, that is, the seller of defective products knows more information than the buyer. Interestingly, because of the existence of the lemon market, the original market will develop slowly or even be replaced. The strength of the lemon market is that it can quickly occupy the market by relying on cheap inferior products. This will obviously make good products slowly withdraw from the competition and eventually disappear.

The asymmetry of information in the lemon market is reflected in the fact that buyers do not know the real value of the goods they want to buy. All they can do is look at a few similar vendors and figure out the average price of those items. As for the buyers, they don't want to spend more money to buy the goods that look similar in appearance. Buyers usually pay an average price for the goods they want to buy. Therefore, there is no doubt that good goods with higher prices are not sought, and gradually, these high-quality goods disappear from the market. Over time, only defective goods are left in the market. As for consumers, they will not believe that there are any good products in the market for lemons. In the end, the only thing consumers buy is price.

We take the second-hand car transaction as an example to explain the reason why the lemon market has developed rapidly. When James wanted to buy a used car, he did not know what price he would pay for the car he liked. James will ask many used car stores for the price. James will get an approximate average price from the attitude of used car sellers by lowering the price. At this time, some sellers are definitely unwilling to sell their cars that have not been driven very much to James at a very low price. But in his heart, James would decide that the quality of the cars provided by all the sellers is the same. Therefore, James will give priority to avoiding cooperation with sellers with high prices. Some sellers of cars with poor quality will be very happy, because they can make a lot of profits through defective products. Unfortunately, many high-quality second-hand cars will slowly withdraw from the market because they lose their advantages in the competition.

Everyone who sells goods in the lemon market will publicize that their goods are of high quality. However, the number of high-quality goods will decrease over time.

The strength of lemon market to defeat the original market is based on the knowledge of information economics and people's consumption psychology. In conclusion, the lemon market gives sellers and buyers a chance to play a price game. By lowering the price, the buyer can reduce the cost of goods and the seller who provides defective goods can make profits. In the end, only the brand owners and the people who provided high-quality goods suffered heavy losses. The secret of lemon market lies in the successful insight into people's consumption behavior.