The “Lemon Market” game report
The “Lemon Market” simulation is a game created to reflect the market with
asymmetric information. Market is saturated with high-, middle- and low-quality
goods and sellers can sell any kind of goods of their choice for any price at each
stage of the game. On the other hand, buyers cannot see what quality they are
going to purchase and they can only base their decisions on the price stated by the
sellers. There are three rounds, two sellers and one buyer in every game. The goal
of the game for every participant is to gain as much value as possible through
making transactions which bring additional value.
1st Game: Seller.
In the first game buyers met completely different buyers in every round.
This condition made it impossible to predict actions of the sellers and this made
buyers suspicious of every possible deal.
I was playing quite chaotically and tried different combinations to attract buyer,
however, I was unsuccessful and was not chosen in any round. I believe it happens
due to total small number of transactions made due to the lack of trust.
Additionally, due to information asymmetry, buyers acted chaotically as well.
1st GAME
Quality
Price
Action
Cumulative total value
Round 1
High
45
Not sold
50
Round 2
High
30
Not sold
100
Round 3
Low
25
Not sold
150
2nd Game: Seller.
The second game was the game of reputation. Buyers met the same sellers every
round which meant that there was a way to monitor the actions of each other.
Perfect scenario for the game of reputation from the side of seller is to convince the
buyer that the product has a fair price for its quality in the two first round. In the
third round it is possible to cheat and charge the same price for the low-quality
good, which I, basically, did in this game.
As a result, I successfully cheated in the third round and sold the low-quality good
for a high price. This was only possible due to the trust I gained in the first two
rounds.
2nd GAME
Quality
Price
Action
Cumulative total value
Round 1
High
40
Sold
60
Round 2
High
40
Sold
120
Round 3
Low
40
Sold
200
3rd Game: Buyer
The third game was also a game of reputation. This time I was the buyer and I
expected the same actions from the sellers that I have performed in the second
game. This is why in first two round I have safely bought medium- and highquality goods and in the third one I did not buy anything because I knew there
would be cheating.
3rd GAME
Quality
Price
Action
Cumulative total
value
Round 1
Medium
24
Bought
56
Round 2
High
33
Bought
118
Round 3
Not bought
168
Conclusion for all three games:
Generally, it was much easier to sell high-price and high-quality goods in the game
of reputation rather than in the random one. Buyers of the random game tend to be
more cautious and would rather go for low-priced goods with lower risks.