Frank Chimero · Selling Lemons

Akerlof asks us to imagine ourselves buying a used car. Some cars on the lot are reliable, well-maintained gems. Others cars are lemons, the kinds of cars that can make it off the lot but are disasters waiting to happen. The sellers know which cars are which, but you, as a buyer, can’t tell the difference. That information asymmetry affects the average price in the market and eventually impacts the overall market dynamics.

The thinking goes like this: if a buyer can’t distinguish between good and bad, everything gets priced somewhere in the middle. If you’re selling junk, this is fantastic news—you’ll probably get paid more than your lemon is worth. If you’re selling a quality used car, this price is insultingly low. As a result, people with good cars leave the market to sell their stuff elsewhere, which pushes the overall quality and price down even further, until eventually all that’s left on the market are lemons.

I think we’re in the lemon stage of the internet.

(I’m super happy Frank is writing again)