Economics

Why the best used cars rarely reach the used-car lot

When buyers can't tell a good used car from a lemon, they'll only pay a price reflecting the average quality. Owners of great cars refuse to sell that cheap and exit the market, leaving mostly lemons behind, so quality (and price) keeps sliding. George Akerlof's 1970 model of this 'adverse selection' problem helped win him a share of the 2001 Nobel Prize in Economics.

George A. Akerlof, The Market for "Lemons": Quality Uncertainty and the Market Mechanism — The Quarterly Journal of Economics, Vol. 84, No. 3, 1970

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