It provides a conceptual framework for thinking about markets characterized by asymmetric information. It presents the standard economic analysis of the “lemon problem” and shows how asymmetric information can lead to market inefficiencies and change the distribution of surpluses. The potential to overcome these problems through credible quality signals is then discussed, illustrated by the example of education as a signal in labor markets. Finally, the incentives given by companies to evaluate consumers in order to achieve price discrimination or to target particularly profitable consumer groups are briefly analyzed.
Harvard Business School (797100-PDF-ENG)
March 27, 1997
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