It is very difficult for amateurs to evaluate puppies so people without additional information tend to expect each to be an average or typical example of its breed, if known, or a general mix of breed characteristics if a mongrel. There are four primary markets for puppies: purebred breeders, dog pound rescue, retail pet shops, and hobby or home breeders. Which puppy market is most likely to suffer from Akerlof's lemons principle?

a.Purebred dog breeders have an enormous asymmetric information advantage over most buyers and tend to use parent dogs that exhibit prized breed-specific characteristics and behaviors, thus increasing expected conformity with the standard breed appearance and reducing the variation in the distribution around the mean of visible characteristics. However, inbreeding among good exemplars that conform with the American Kennel Club's (AKC) prescribed external characteristics has in many cases lead to the propagation of difficult-to-detect internal faults such as hip dysplasia and epilepsy.

b.Dog pound or rescue shelters selling undocumented and mongrel dogs at relatively low prices. (Assume that the rabies and distemper shots are provided and a pound vet has made a modest examination of the animal). Mongrels result from the chance encounters of their parents and often display a wide variation around the qualities of their individual parents.

c.Retail puppy shops (e.g. of the sort you see in malls) that place the cute little creatures in brightly lit cages for inspection by potential buyers (or their even less-informed children). Provenance is often difficult to determine or validate by buyers and some experts charge that the dogs are the product either of "puppy mills" or flawed cast-offs from purebred breeders. (A "puppy mill" is a derogatory term for a commercial breeder that produces significant numbers of puppies from purebred and registered breeding bitches that are often confined in constrained spaces or cages to avoid accidental pregnancies. Critics charge that the puppies are typically poorly socialized and subject to diseases such as kennel cough. Defenders argue that the worst practices have been outlawed or otherwise minimized and that they represent an inexpensive way of providing quality pets to the market at lower costs.)

d.Hobby or home breeders who are often amateur breeders trying to recover the cost of their own female dog. They typically offer the offspring of their (usually) purebred pet and a known (usually) registered male of the same breed in an effort to offset the costs of acquisition and care.

e.None of these markets is susceptible to the lemons principle.