Abstract
This paper provides an explanation, not found in the literature, for the origin of quality dispersion in product markets. The consumer's pure experience case of sequential search is modeled and the model is closed by explaining the firm's optimal decision making problem. Then the necessary and sufficient conditions for a non-degenerate distribution of quality are established. It is also shown that if a non-degenerate equilibrium distribution of quality does exist then it is an unstable equilibrium. The only stable equilibrium distribution is the degenerate lemon distribution. Therefore the model provides added support for Akerlof's argument that lemons tend to drive out good quality.
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