Akerlof's Lemons and Airplanes

themarcus

A quick question: Do firms typically encounter difficulty offloading relatively new large airplanes?

I mean does Akerlof's theory apply here? Or is there so much information available on a large aircraft's history that very little asymmetry exists?

(In case you're wondering - no, I'm not from Aer Lingus )

Flamed Diving

themarcus wrote: »

A quick question: Do firms typically encounter difficulty offloading relatively new large airplanes?

I mean does Akerlof's theory apply here? Or is there so much information available on a large aircraft's history that very little asymmetry exists?

(In case you're wondering - no, I'm not from Aer Lingus )

As long as there is no such thing as perfect information, I guess 'his' theory holds, to some extent.

Discoaintdead

I'm thinking if someone is going to buy a plane they will probably understand if it's a lemon or not. Would there be less asymmetry when there is more money involved?

themarcus

Thanks. I more or less figured that some asymmetry would exist indeed. But far less than would exist in most markets. So I guess it would be reasonable to assume that there is some reduction in price due to that asymmetry, but not necessarily that much.

A friend and I were wondering how easy it is for airlines to liquidate, hence the question.

Incidentally, I realise it's not 'his' theory alone, as Flamed pointed out, but for simplicity's sake...

Flamed Diving

Remember, this theory states that asymmetry causes lemons to raise in price and peaches to lower in price. Theoretically, it could leave the aggregate price unchanged.

eamonnm79

themarcus wrote: »

A quick question: Do firms typically encounter difficulty offloading relatively new large airplanes?

I mean does Akerlof's theory apply here? Or is there so much information available on a large aircraft's history that very little asymmetry exists?

(In case you're wondering - no, I'm not from Aer Lingus )

Would the fact that there would be a lot more supply than demand at the moment not be a bigger concern to a company trying to sell nearly new planes. Michael O'Leary (I know, pinch of salt) recons that the Industry in Europe will consolidate significantly in the next while. Ryanair and most others are cutting routes all over europe.

nesf

His theory assumes that the buyer can't tell if its a lemon or not (or that it's not worth the expense of finding out). In the case of major pieces of kit like aeroplanes you can assume that the buyer will have engineers go over it with a fine tooth comb to check it out something that's beyond the means of your average second hand car buyer.

eamonnm79 wrote: »

Would the fact that there would be a lot more supply than demand at the moment not be a bigger concern to a company trying to sell nearly new planes. Michael O'Leary (I know, pinch of salt) recons that the Industry in Europe will consolidate significantly in the next while. Ryanair and most others are cutting routes all over europe.

No, Akerof's theory is about asymmetry in information in markets. It's detailed here: http://en.wikipedia.org/wiki/The_Market_for_Lemons (he won a Nobel Prize for this work btw)

Demand and supply in the market due to market conditions is a separate issue.

eamonnm79

nesf wrote: »

No, Akerof's theory is about asymmetry in information in markets. It's detailed here: http://en.wikipedia.org/wiki/The_Market_for_Lemons (he won a Nobel Prize for this work btw)

Demand and supply in the market due to market conditions is a separate issue.

"A friend and I were wondering how easy it is for airlines to liquidate, hence the question."