In Chapter 15 of the Networks book draft, for any market where sellers and buyers have asymmetric information, it is very probable that there is no market at all because the buyers would assume everything is “lemon”. Some examples of this are the market for used-cars, the market for health insurance, etc. However, this is not the case in the real world because if it is, there wouldn’t be any used-car companies or any insurance companies at all. One of the things prevents this from occurring is brand names/brand images.

According to the article “Brand Names” by Benjamin Klein, consumers have to rely on brand names and the company reputations associated with them because of the asymmetric information. In the used-car case, a company called CarMax has developed its brand name. Its “no hassles, no haggling prices” did not scare buyers away, and as a matter of fact, it even increased consumers’ confidence in their products. Consumers trust CarMax’s brand name, they believe they won’t get a “lemon” if they go with CarMax, and this has made the company not only not suffer from the “market of lemons”, but also superior among its competitors.

One of the issues brand name causes, as discussed in the article, is that it gives the company “market power” to charge more than its competitors. And if there’s no difference between the products of different companies in the same industry, are consumers paying the higher price just for quality assurance? The answer to this, in the article, is simply “yes”. “All consumers pay something for brand name assurance;” said Klein, “it is merely the amount that consumers pay that varies across products.”