More Information, More Ripoffs: Experiments with Public and Private Information in Markets with Asymmetric Information

Abstract

It is well known that asymmetric information can be a catalyst for producing a lemons market. What is much less well known is how different institutional arrangements and their concomitant information conditions affect the lemons outcome. We conduct a laboratory experiment to examine the role that two different types of markets—two-sided multilateral negotiations and posted offers—play in an environment with sufficient conditions to yield a lemons outcome. We also investigate the effect that publicly available prices and advertisements have on buyers and sellers in a posted-offer market.