Information Asymmetry and the Lemons Market Theory: Empirical Evidence From the Lebanese Automobile Market

Abstract

Based on the previous work published in 1970 by George A. Akerlof along with Michael Spence and Joseph Stiglitz, this research paper investigates the automobile market in Lebanon. The main theory adopted in this paper is the Lemons market theory which explores consumer's behavior under asymmetric information and quality uncertainty regarding the decision-making process followed when buying a used car. The application of this theory on the Lebanese market led the way to interesting findings concerning the concepts under study and helped us in discovering many features that are specific to the Lebanese culture. Data were collected in a survey on a sample composed of 126 car buyers and 58 car dealers, both coming from different cultural backgrounds and age ranges. Results showed that the Lebanese automobile market is a “lemon” market with additional specifications resulting from the cultural differences existing in the country.