The Theory of the Lemon Markets in IS Research

Abstract

The {\textquotedblleft}lemon{\textquotedblright} problem was initially posed by Nobel Prize winner Akerlof in his seminal article of 1970 and showed how a market with unbalanced information, called information asymmetry, can lead to complete disappearance or to offerings with poor quality where bad products (lemons) wipe out the good ones. Empirical evidence for Akerlof{\textquoteright}s theory came originally from the market of used cars, where the lemon is a well known problem. However the theoretical model of the {\textquotedblleft}lemon{\textquotedblright} problem has proven also to be valid on other markets and in comparable situations like internal markets. The theory is also been used more and more in IS research especially since the emerging e-commerce initiatives and the continuous growth of e-markets and auctions. In this chapter we bring a description of the theory by presenting its nomological network and its linkages to other well known theories in IS research. The relevance for the theory is shown to explain phenomenon{\textquoteright}s in the IS discipline. An overview is given of current and past IS articles using the Lemon Market theory (LMT) together with a bibliographical analysis of the references to the original Akerlof article.