Experimental Studies of Markets with Buyers Ignorant of Quality Before Purchase: When Do "Lemons" Drive Out High Quality Products?

Michael Lynch

Experiments indicated that if sellers could not develop reputations for poor quality, then the market would consist entirely of poor quality products. The need to attract re-purchase is not sufficient incentive to have the seller build a reputation for supplying good quality, while the imposition of a requirement for truthful advertising or labelling is sufficient.