Bizarre Bakeries in the Heart of Manchester

 

bakery in Chinatown. Just when we think we’ve found a good one, the next visit disappoints. Recently, a new bakery opened, adding more uncertainty. We cannot observe the true quality of bread before purchase, while producers have full information!

 

#ManchesterFoodie #ChinatownMcr #BakeryGamble

 

Information Inequality

 

In the streets of Chinatown, asymmetric information is the silent guest at every bakery encounter. This occurs when the seller possesses significantly more information about a transaction than the buyer (Akerlof, 1970). As hungry students, we stand in front of two bakeries, unable to distinguish a “peach”—a bun made with premium, fresh ingredients—from a “lemon”, which might use low grade flour, for example. While the baker knows exactly when that custard bun left the oven, we face total uncertainty until that very first bite. In economic terms, the quality of the bakery products, categorized as experience goods, is an unobservable characteristic at the time of purchase (Nelson, 1970).

 

#HiddenQuality #PeachOrLemon? #TheDailyBake

 

We can’t tell the difference through the glass window and are forced to take a mental gamble based on expected value. If you believe half the bakeries in Chinatown are high quality and half are low quality, you won’t be willing to pay the premium price. Instead, you’ll only offer a price somewhere in the middle—an average of what both buns are worth to you!

 

This leads to a pooling equilibrium, where both the premium and budget bakery end up selling their products at the same mid-range price (Cadsby, Frank and Maksimovic, 1990). While this may seem fair to us as students, it creates a massive win for the “lemon” bakery. They are essentially overcharging for an inferior product, benefitting from the fact that their true quality is hidden behind a sugary glaze.

 

#MiddleGround #SoggyBuns

 

Bad Buns

 

The real tragedy happens behind the scenes for the high-quality baker. Producing a “peach” bun is expensive, with premium ingredients and skilled labour. If the market price is dragged down by the presence of “lemons”, the higher quality baker may find it impossible to cover costs. This triggers adverse selection, a process where low-quality goods eventually drive high-quality goods out of the market (Akerlof, 1970). As the “peach” sellers exit because they can’t negotiate a price that reflects their value, us students quickly realise that only bad bakeries are left to buy from. This unravelling of the market means that the high-quality loaves that we really want are no longer available. As we’ll see below, we are saved from this worst-case scenario, but this really does happen! In Benin, farmers have realized that market prices for maize are low because most of it has pesticides (Kadjo et al., 2019). That’s why even when farmers produce non-pesticide maize, they don’t sell it on the market where they would only earn a little, instead keeping it for their own family to eat. This makes high-quality maize almost impossible to buy for market-goers.

 

#MarketFail #WheresTheGoodStuff

 

Awesome Advertisements

 

Now, what about us? Are there no good bakeries anymore? Well, not quite, and that’s thanks to market signalling. The better bakery can signal to us consumers that they sell better goods, by advertising their delicious-looking pastries on posters around town. Of course, the worse bakery can try to do the same, but because it has less appealing pastries and bread, even if they advertise in the same way, it won’t make us crave it as much as the better bakery. In other words, the worse bakery would have to spend more money to advertise as effectively as the better bakery, using professional camera crews and editing to make the products look as good. And so, when the two bakeries decide how much to advertise to make the most profit, the better bakery ends up advertising more; it’s just not worth it for the worse bakery because of the high cost (Archibald, Haulman and Moody, Jr., 1983). So even though both bakeries are allowed to advertise, the difference in how much advertising they do tells us that one sells better pastries than the other.

 

And as the advertising increases demand for one bakery but not the other, the worse bakery must lower prices to compete, while we will still buy at the more expensive one as we are more confident now about the quality (Milgrom and Roberts, 1986). And we really see this! Comparing the Chinatown bakeries of Lottie’s Bakehouse and Wong Wong Bakery through our observations (no shade, both have their advantages), Lottie’s has 11000+ followers on Instagram compared to under 5000 for Wong Wong. Safe to say one has been advertising more! Then, looking at their prices, Lottie’s sells buns for about £3, while Wong Wong even has bun + drink deals for just £1! So the economics tell us that Lottie’s might be the high-quality bakery we’ve been looking for!

 

#SpotTheDifference #RealDeal

Images: Lottie’s Bakehouse Instagram and Interior

Internet Improvement

 

In the future, new signals may emerge for Chinatown. For example, online reviews could become the ultimate weapon against asymmetric information. They act as a market signal, where past consumers reveal the unobservable characteristics of experience goods (Luca, 2016). While a "lemon" bakery might try to manipulate the system, faking a good reputation would be costly when against a tide of disappointed students. This transparency minimizes asymmetry, preventing the market from unravelling. Instead of a gamble, we would get a separating equilibrium as “lemons" get exposed. Market failure is prevented and we get efficient (and tasty!) economic outcomes.

 

Next time we walk through Chinatown looking for something to eat, we’re not just buying bread. We’re making a decision under uncertainty. Asymmetric information makes us more cautious and means good bakeries don’t always get rewarded. That’s why signalling is so important. Things like reputation, presentation, and especially online reviews help us figure out which places are actually worth it. As students, a simple way to make better choices is to rely on these signals—checking reviews, noticing busy shops, or even sticking to places we trust. In the end, the best bakery isn’t just the one that makes the tastiest bread, but the one that can convince us it’s worth taking the risk.

 

#ChinatownEats #AsymmetricInformation #AdverseSelection #Uncertainty #MarketSignalling #EconomicEfficiency

References:

Akerlof, G.A. (1970) ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’, The Quarterly Journal of Economics, 84(3), pp. 488–500. Available at: https://doi.org/10.2307/1879431.

Archibald, R.B., Haulman, C.A. and Moody, Jr., C.E. (1983) ‘Quality, Price, Advertising, and Published Quality Ratings’, Journal of Consumer Research, 9(4), p. 347. Available at: https://doi.org/10.1086/208929.

Cadsby, C.B., Frank, M. and Maksimovic, V. (1990) ‘Pooling, Separating, and Semiseparating Equilibria in Financial Markets: Some Experimental Evidence’, The Review of Financial Studies, 3(3), pp. 315–342. Available at: https://doi.org/10.2307/2962073.

Kadjo, D. et al. (2019) ‘Food Safety and Adverse Selection in Rural Maize Markets’, Journal of Agricultural Economics, 71(2), pp. 412–438. Available at: https://doi.org/10.1111/1477-9552.12350.

Luca, M. (2016) Reviews, Reputation, and Revenue: the Case of Yelp.com, Hbs.edu. Available at: https://www.hbs.edu/faculty/Pages/item.aspx?num=41233 (Accessed: 23 April 2026).

Milgrom, P. and Roberts, J. (1986) ‘Price and Advertising Signals of Product Quality’, Journal of Political Economy, 94(4), pp. 796–821. Available at: https://doi.org/10.2307/1833203.

Nelson, P. (1970) ‘Information and Consumer Behavior’, Journal of Political Economy, 78(2), pp. 311–329. Available at: https://doi.org/10.2307/1830691.