The Market for Lemons and the Refurbished Industry
In class, we discussed the market for lemons, which is explained in the used car market. As the buyers tend to accept a price between the price for ‘peach’ cars and the price for ‘lemon’ cars, most of the deals between buyers and sellers will be buying the ‘lemon’ cars. After some time, customers’ expectation on second-hand cars will drop, and the ‘peach’ cars are less likely to remain in the market. In this way, the market becomes worse and this is why we should avoid these ‘lemons’ in markets.
The case is similar in the refurbished industry, where the buyers buy these products because they think the price difference between the original price and the refurbished price is large enough to make the refurbished item worthy. However, as it is a relatively new and developing industry, many people, especially a lot of first-time buyers, have a relatively average impression of the refurbished industry. However, if the refurbished items they get are not good enough to reach their expect, they may expect lower prices on refurbished items, which may possibly also brings down the quality of the refurbished industry. However, if the quality is good, it may copy the success of car re-sellers like CarMax, who took up much of the used car market by enhancing the quality and guaranteeing the functionality of the cars.
However, in my perspective, I think this process is challenging. The refurbished items by manufactures are relatively reliable, but some third party sellers always prefer to sacrifice quality for a lower price. Some even go to extreme, by selling used items as refurbished directly. There is always a huge gap between the comments on different sellers’ refurbished or renewed items on Amazon. In order to give customers better impressions on refurbished items, sellers still have a long way to go.
Over all, the refurbished market is very similar to the used car market and it is ripe. We need better qualities of the products to support the development of this eco-friendly industry.