Journal Press India^®

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In his seminal paper in 1970, Akerlof received the Nobel Prize in Economics for developing the model that he applied to the lemons market. The purpose of this paper is to generalize the findings of Akerlof to other perishable goods. In doing so, the market for tomatoes is chosen as the proxy for perishable goods.
Design/Methodology/Approach: This paper employed various equilibria models such as the Fair Pricing Equilibrium model and the Separating Underpricing Equilibrium model. In addition, the paper also employed Pooling Equilibrium and Market Breakdown Equilibrium. In summary, the paper employed a variety of equilibrium models that are commonly used in economics and game theory studies.
Findings: We demonstrate that the model proposed by Akerlof over four decades ago has wider applicability than simply lemons. We demonstrate that such a model has particular relevance to the sale of high technology offerings and to the sale of rapid obsolescence goods or other time sensitive goods, such as tomatoes, under conditions of asymmetric information.
Research Limitations/Implications: One of the key limitations of this study is the fact that the model applied consisted of a set of equilibria models. In economics, there are other more sophisticated models available to empirically investigate this topic. Hence, the methodology could have been more empirically rigorous. Furthermore, we could have considered a basket of perishable goods as opposed to focusing exclusively on the market for tomatoes. In terms of implications, the study has wide reaching practical implications for areas such as IPOs, SEOs, and even the subprime mortgage market.
Practical Implications: This study has far reaching implications that go well beyond the market for tomatoes. The results can also be applied to the Initial Public Offering (IPO) market. This paper has demonstrated that market breakdown is the cause of the disappearance of best efforts offerings in the IPO market. In the case of IPOs, the evidence of market breakdown and the remedy for market breakdown is underwriting, where the investment banker essentially sets the price and certifies that the price is appropriate for its investor clients, guaranteeing full subscription to the offering. The study has demonstrated that venture capital firms are a remedy for the market breakdown in the IPO market. The study also proposes remedies for market breakdown in seasoned equity offerings (SEOs) and the subprime mortgage market. In summary, the study demonstrates that the model proposed has wide reaching practical implications.
Originality/Value: Not since Akerlof’s seminal work in 1970 has such a paper been attempted. Akerlof’s paper was rather narrowly focused on the market for lemons. This paper used tomatoes, as opposed to lemons, as the proxy for perishable goods. This paper has also demonstrated the far reaching implications of the equilibria models employed. No paper to date has applied equilibria models to the sale of perishable goods while simultaneously attempting to show the far reaching practical implications of the model.

Keywords

Tomatoes, Game Theory, Pooling Equilibrium, Nash Equilibria, Fair Pricing Equilibrium, Separating Underpricing Equilibrium and Market Breakdown Equilibrium.

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