Lemons and Cherries

With more Transparency to more Success in Car Trade

In the USA, "Lemons" is the name for used cars that are suspected of having a high potential of undiscovered technical defects. On the other hand, there are "Cherries," which are flawless cars of the highest quality. There is an essay on this subject by American economist David Akerlof: The Market for Lemons - Quality Uncertainty and the Market Mechanism. The essay states, "A buyer of a used car suspects that the seller knows more about the condition of the car than he admits." This is referred to as Information Asymmetry due to a lack of transparency. This uncertainty causes the buyer to lower their expectations and automatically pay less. Akerlof was awarded the Nobel Prize in Economic Sciences for describing this phenomenon in economic psychology.