[godelski]

The entire world operates on trust of some form. Often people are acting in good faith. But regulation matters too.

If you don't go after offenders then you create a lemon markets. Most customers/people can't tell, so they operate on what they can. That doesn't mean they don't want the other things, it means they can't signal what they want. It is about available information, that's what causes lemon markets, information asymmetry.

It's also just a good thing to remember since we're in tech and most people aren't tech literate. Makes it hard to determine what "our customers" want

[eru]

> If you don't go after offenders then you create a lemon markets.

Btw, private markets are perfectly capable of handling 'markets for lemons'. There might be good excuses for introducing regulation, but markets for lemons ain't.

As a little thought exercise, you can take two minutes and come up with some ways businesses can 'fix' markets for lemons and make a profit in the meantime. How many can you find? How many can you find already implemented somewhere?

[short_sells_poo]

Well throw us bone! Can you cite robust examples where private markets deal with this gracefully? Because I can't.

An informational asymmetry that is beneficial to the businesses will heavily incentivise the businesses to maintain status quo. It's clear that they will actively fight against empowering the consumer.

The consumer has little to no power to force a change outside of regulation, since individually each consumer has asymptotically zero ability to influence the market. They want the goods, but they have no ability to make an informed decision. They can't go anywhere else. What mechanism would force this market to self correct?

[eru]

Businesses with a reputation for honest dealing and good quality attract repeat business.

Why are you so pessimistic that customers can't go anywhere else?

The classic market for lemons example is about used cars. People can just not buy used cars, eg by buying only new cars. But a dealer with a reputation for honesty can still sell used cars, even if the customer will only learn whether there's a lemon later.

Another solution is to use insurance, or third party inspectors.

[godelski]

  > People can just not buy used cars, eg by buying only new cars.

Listen to yourself here. Your solution is "be rich"

So what happens is you either create a cliff or you pull everything down too. Lemon markets for the poor or lemon markets for everyone. Neither is good

[eru]

> Listen to yourself here. Your solution is "be rich"

I never bought a used car, or any car at all. And I did that before I was rich.

In fact, poor people generally can't afford cars in the first place.

> So what happens is you either create a cliff or you pull everything down too. Lemon markets for the poor or lemon markets for everyone. Neither is good

Huh, what? Reputation still works, even for poor customers. And so do warranties and insurances.

And you seem to imply that regulation can magically make the problem go away? It can't. Typically, regulation in this case raises the prices for everyone by demanding certain features, whether users want them or not. (But details depend on exactly what regulation you propose.)

[foobarbecue]

> In fact, poor people generally can't afford cars in the first place.

I'm guessing you're not American. In the US, about 40% of homeless people live in cars. You can get a car for a song here.

[godelski]

  > In fact, poor people generally can't afford cars in the first place.

I bought a car when I was poor. It was $2k. Why? Because if I didn't buy a car a 20 minute drive to work was a 2hr bus ride. You will, in fact, find that lots of people buy cheap cars. Go look at how many cars exist at used car lots or even your local Craigslist. You think those are just listings and no one is every buying?

  > Huh, what? Reputation still works

You misunderstand. Apple and Google have reputations but their products still have a lot of shit.

  > And you seem to imply that regulation can magically make the problem go away?

Never claimed this. Don't put words in my mouth. Which you seem to have this all figured out. I suggest you write a paper. Go win your Nobel prize. ¯\_(ツ)_/¯

[godelski]

  > As a little thought exercise, you can take two minutes and come up with some ways businesses can 'fix' markets for lemons and make a profit in the meantime. How many can you find? How many can you find already implemented somewhere?
 

This sounds exactly like what causes lemon markets in the first place. Subtle things matter and if you don't pay attention to them (or outright reject them) then that ends up with the lemon market situation.

Btw, lemon markets aren't actually good for anyone. They are suboptimal for businesses too. They still make money but they make less money than they would were it a market of peaches.

[eru]

Let me give you an example: reputation can solve the 'market for lemons'.

If you build a reputation for honest dealing and high quality, then people can trust that you don't sell them lemons (ie bad used cars in the original example). This reputation is valuable, so (most) companies will try to protect it.

And that's exactly what's happening with some used car dealers.

[godelski]

You know, the lemon market also applies to new cars, right? And it still happens with name brands. Go read the paper, it accounts for those things.

I mean it got a Nobel prize. You really think they didn't think things through?

[eru]

The paper explicitly has to exclude reputation as a mechanism.

They did think this through, but that doesn't mean reputation doesn't work in the real world.

[godelski]

I think you should read the paper. Did they exclude reputation or did reputation not matter to the equation? Are you going to criticize the fact that they "excluded" the color of a person's eyes?

https://www.sfu.ca/~wainwrig/Econ400/akerlof.pdf