Will CPAP Cure that Lemons Problem?

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Will CPAP Cure that Lemons Problem?

Post by koimaster » November 28th 2019, 12:15am

Airway Pressure, a medical device which assists those diagnosed with sleep apnea. Am I suggesting that lemons could benefit from CPAP treatment? No. I'll explain.

One of the most important insights in economics comes from an economist and Nobel laureate named George Akerloff. His most famous paper dealt with a situation where consumers do not have perfect information about a product before they purchase it.

topic with an example drawn from the used car industry. Suppose there are only two types of used cars: cherries which are perfect and worth $10,000 and lemons which are only worth $2,000. Suppose that there are equal numbers of cherries and lemons but there is absolutely no way for a buyer to determine which car is which. This is an example of an information imperfection, albeit a severe one. A buyer would rationally only be willing to pay $6,000 for a car because there is a 50% chance it is a cherry and a 50% chance it's a lemon. So the average value of the two car types is the prevailing price.

But then nobody brings their cherries to market because they can't earn what a good car is worth! This changes the composition of car types available and all that is left are the lemons. So the outcome we ultimately see is one in which only low quality versions of a product are sold and prices for the product are low.
Is That a Lemon on Your Wrist Or Are You Just Angry to See Me?

What the heck does this have to do with watches? Well, one solution to Akerloff's "lemons problem" is to solve the information imperfection. An impartial mechanic could perhaps help buyers distinguish cherries from lemons. Or, as many many car companies have discovered, a certification program from the original manufacturer would be another option. We see all kinds of interesting solutions to the lemons problem. Online customer ratings and restaurant health inspection letter grade are still more examples.

https://www.horolonomics.com/2019/10/wi ... oblem.html


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