Lemon Market Buyer

This game is modeled after the seminal 1970 paper by George Akerlof titled The Market for "Lemons:" Quality Uncertainty and the Market Mechanism. One of the assumptions of competitive markets is that there is perfect information between all parties involved. This game demonstrates what happens when there is an information asymmetry, specifically when sellers have information that buyers do not.

Students participate in this game as buyers. At the start of the game, buyers see that there are many cars in the market and that these cars have a range of values which are uniformly distributed. The computerized seller knows the car's quality and thus the true market value of the car; the buyer has no such information. Due to this asymmetry of information, whatever the buyer's offer is, it prices out all of the cars with a value higher than the buyer's offer. The buyer is left to choose from with cars which have a value lower than the buyer's offer.

This is a single-player lemon market game. To view our two-sided game, check out our Market for Lemons game in the library!

Key Learning Objectives

• Asymmetric Information: In this game, sellers have private information (quality and value) that would be essential for a buyer to have to make an informed decision. This asymmetry leads to dire consequences for the market as a whole.
• Adverse Selection: Adverse selection occurs when the best quality goods are forced out of the market and only relatively lower quality goods are transacted due to information asymmetry between the buyer and the seller. Over time, no one is willing to make any transactions, leading to a total market collapse.
• Market Failure: Market failure occurs because there are cars the automated seller would be willing to sell at market price and there are buyers who would be willing to buy at that price, but due to asymmetric information, the buyer is unable to trust the seller's price, resulting in the sale of only the lowest quality cars.
  

Explore more MobLab games in our catalog or schedule a demo with a MobLab team member!