Lemons Market Program

Charles Holt

Information and Uncertainty

Experiment Software

This program runs a market in which sellers select prices and quality "grades" independently on a take-it-or-leave-it basis at the start of each period or "round." Buyers shop in a random sequence and place orders at the posted prices. Buyers observe quality grades prior to purchase in the full-information treatment, but quality is not observed in the asymmetric-information treatment. A higher grade raises seller costs and buyer values. The program collects and displays price and quality information and calculates the theoretical competitive price for the surplus-maximizing grade. Market efficiency is measured as the fraction of maximum possible value created by the trading process, i.e. the ratio of the sum of all buyers' and sellers' earnings to the maximum possible value of this sum.