With an experience good, the consumer can ascertain
the quality of the product only after consumption.
If the buyer and seller only interact one time,
then it is as if they are playing a single stage game.
Like a prisoners’ dilemma game, neither buyer nor
seller has an incentive to cooperate. In one-shot
relationships, as in Akerlof’s (1970) “lemons” result,
moral hazard and adverse selection will result
in food produced with the lowest-cost methods. A
producer who sells experience goods to one-time
customers has strong incentives to only sell goods
that are at the lowest possible quality level acceptable
to the one-time consumer. Therefore, there is
moral hazard on the producer side. This problem
can be overcome if the producer offers an adequate,
enforceable warranty. Grossman (198 1)
shows that in a one-shot relationship, if sellers are
required to be truthful in any disclosures they make
about product quality, they will fully disclose the
true level of product quality.