The Inuence of Informed Buyers in Markets Susceptible to the Lemons Problem

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  • 1 January 2004
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      • Published in RePEc
Abstract
1 er mars 2004 Résumé I show that the presence of informed buyers is necessary but not always sucient for producers to use prices as signals of product quality. A suciently high fraction of informed buyers eliminates the lemons problem. A small fraction of informed buyers mitigates the lemons problem, provided that buyers' prior belief of high quality is suciently pessimistic : price reveals high quality at a signaling cost which increases with market power. However, if buyers' prior belief of high quality is optimistic when the market is poorly informed, then the lemons problem is not overcome.
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