Asymmetry in Saffron Market

Existence of substandard or adulterated goods destroys the market for quality or pure goods when there is market asymmetry
Representational Pic
Representational Pic

The Lemon market isa 1970 standard term introduced by the economist George Akerlof who witnessesthe destruction of the quality of goods transacted in a market as a result ofinadequate market information between buyers and sellers or market asymmetry. Heillustrated how the quality of goods traded in the market is governed byprices. In American everyday communication, a lemon depicts a car which isfound defective the moment it is purchased (Akerlof, 1970). Under the situationof market asymmetry, low prices have the capacity to drain or drive awaysellers of high-quality goods, leaving merely lemons behind.

It is not wrong torelate Akerlof's lemon market with the saffron market for it is also undergoingmarket asymmetry or inadequate market information between buyers and sellers.The saffron owners who sell adulterated saffron are willing to sell at a lowprice while those who sell unadulterated or pure saffron are willing to sell ata high price. The buyers are willing to pay a higher price for adulteratedsaffron and low price for unadulterated saffron. Such a situation happens inthe presence of market asymmetry or information lopsidedness thereby leading toadverse selection. In addition, the saffron sellers very well know what kind ofsaffron they have, but buyers are not in a position to tell the same.Furthermore, what they know is that half of the entire used saffron are lemons(here adulterated saffron). As a result, given the expected probability thatknown saffron is a lemon, they will pay only a fixed price that averages thevalue of adulterated saffron and unadulterated saffron. But honest saffronowners who sell pure saffron are not ready and therefore willing to sell at thefixed price, so only fake or adulterated saffron owners will sell in themarket. They know whether they hold adulterated or unadulterated saffron, giventhe fixed price at which buyers will buy, they will sell only when they holdadulterated saffron and they will leave the market the moment they hold puresaffron. In the long run, as more sellers of pure saffron leave the market, theaverage willingness-to-pay of buyers decline, causing even more drainage ofsellers of pure saffron from the market by way of a constructive or optimisticfeedback circle or response circle (Akerlof, 1970).

The rationalinference or conclusion is that only the adulterated saffron will be sold, andthe steady-state or equilibrium price will be between the price that owners ofadulterated saffron are willing to sell and the price that the buyers arewilling to pay for adulterated saffron or lemon in Akerlof's terminology. Thesimple existence of substandard or adulterated goods destroys the market forquality or pure goods when there is market asymmetry. Honest saffron owners whosell pure saffron need some way of signaling their saffron's quality. Basicallythe quality uncertainty, market asymmetry, and adverse selection likesituations make some meaningful conclusions about the cost of fraudulence oradulteration in markets in broad-spectrum. The cost of adulteration and marketcheating is fundamentally a matter of the amount by which the buyer is cheatedand the cost must contain the loss suffered from driving good quality productsout from the market or legitimate business out of the market.

It is high time toavoid the conditions that generate market asymmetry. As the saffron market ishighly unorganized, it is very important to make the trustworthy exposingtechnology available to sellers or dealers of saffron so that sellers with pureor unadulterated saffron have no way to reveal this realistically or reliablyto buyers. Moreover, it is said that the customer is the king of the market andtherefore always has an upper hand. It is very important for buyers to beoverall optimistic about the seller's quality. Furthermore, there should not bean insufficiency of operational public quality guarantees.

Binish Qadri isICSSR Doctoral Fellow pursuing Ph.D. in Economics at Department of Economics,Central University of Kashmir.

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