The lemon theory was coined by Akerlof and it offers a deep insight into asymmetric information between consumers and producers. This theory mainly emphasizes that manufacturers are vulnerable to misuse because they have deeper information than consumers.
A consumer who wants to buy a second-hand product cannot have as much precise information about the product. In this case, it causes the birth of asymmetric information and market failure. For example, international companies know that the easiest way to overcome this situation is to improve their brands by giving warranties.
Asymmetric Information Analysis
First, financial markets present asymmetric information in accordance with the explanation promised by the lemon theory. Banks usually check the information when people want...
