If one seller sells a car in perfect condition for $ 5,000, and another the same, but killed for $ 3,000, then the buyer sitting on the Wheels website will consider the average price for this car = $ 4,000.
The third seller, whose car is even more dead and has a red price of $ 2,000, will go to the site, ask the price and set the amount of $ 3,500.
The buyer will phone everyone, bargain, and most often buy one of the more or less dead cars.
Sellers of good cars remain out of deals, because putting the average market price for them = working in the red. They are slowly leaving the market, which is filled with bad cars.
For finding this pattern in 2001, Spence, Stiglitz and Akerlof received the Nobel Prize.
The phenomenon underlying the pattern is that the seller knows more than the buyer (asymmetry of information), and when the buyer finds out everything, it's too late.
We are talking about complex products, which are difficult to judge in advance. In addition to machines, this also applies to software products, insurance, and businesses for sale. Companies that are planned for sale can roll up sales for years with margins close to zero, because buyers are used to evaluating the business they buy based on turnover, often ignoring other business metrics.
Based on George Akerlof's publication, "The Market for Lemons: Uncertainties in Quality and a Market Mechanism."