“The Lemon Market” was an economics article written by George Akerlof. It is useful today in explaining why individual “bad apples” can diminish the profitability of online businesses and how they can ultimately destroy entire markets. To get started, let’s find out a little about “The Lemon Market”. First of all, a “lemon” by definition is a product that looks decent enough, but at its core is a bitter-tasting piece of junk. They are most commonly mentioned in automotive markets, but lemons can also apply to many other types of products, such as informational and web products. Now, in the 1960s, George Akerlof started thinking about lemons when he was an assistant professor at Berkeley. He wrote the article, and at the time, no one considered it important. Akerlof even had trouble getting it published. However, things have changed since Akerlof received the Nobel Prize in 2001 for his contribution to economics.

The central example that Akerlof taps into in “The Lemon Market” is the used car market. This is a market where only the seller has real knowledge of the value of the car (since he only knows if a car is good until he has driven it for a while). Over time, someone may realize that he can make more money selling a lemon than a quality used car. In theory, the effect of this devalues ​​the entire used car market. If people are worried about getting lemons, it’s because they’d be less willing to shell out their hard-earned money. In turn, it may prove impossible for sellers of good used vehicles to recoup the value of your car. Even if it’s a good car after all, you can never know until later.

Eventually, the net effect of these falling dominoes is to drive good vehicles out of the used car market. The repercussions also mean that honest traders may not be able to survive market conditions. In the worst case, the market for lemons completely collapses, since there is no value left in it. At that point, no one buys a used car anymore.

The idea behind “The Lemon Market” is important today. Take the recent spate of fraud involving online camera dealers as an example. On the Internet there is no real guarantee of quality. You don’t know if you’re getting a good deal until the transaction is complete. Since the anonymity of the Internet makes it easy for thieves to exist, the consequences are often not encouraging. You can expect people to pay less overall for products online. Therefore, an honest dealer selling a quality product may not be able to compete in the online world.

Certainly, the lemon law is not the end of everything, be it all for Internet retail. More people are making a living on the web now than ever before. However, caution is warranted as prices and standards for Internet commerce tend to be lower than traditional business models. That is why it is extremely important to have a strategic and professional plan before entering the Internet market.