The Impact of Online Information on the Purchase of Certified Used Cars

Vandana Ramachandran (), Siva Viswanathan () and Sanjay Gosain ()
Additional contact information
Vandana Ramachandran: Robert H Smith School of Business, University of Maryland, http://www.wam.umd.edu/~vandana/
Siva Viswanathan: Robert H Smith School of Business, University of Maryland, http://www.stern.nyu.edu/networks/
Sanjay Gosain: Capital Group, CA.

No 07-37, Working Papers from NET Institute

Abstract: Secondary markets have adopted a number of quality signaling mechanisms such as certification to reduce information asymmetries between buyers and sellers in these markets. However the importance and value of these signals depends on the nature and extent of information asymmetries. With the growth of the Internet, consumers seeking to purchase used goods now have access to a plethora of information on various aspects of their purchase process. What then is the impact of such information on the salience and value of a traditional quality signal such as certification? We draw upon a unique and extensive dataset of consumers who obtained vehicle and transaction related information from online sources in their used vehicle purchase process to examine the impact of their information-acquisition on the choice of certification, as well as the price paid. We compare the outcomes of sales where consumers purchased certified used cars with sales of used-cars where there was no certification. Our findings highlight that product-related information substitutes, and price-related information complements, certification as indicated by their differential impacts on demand and price of certified used cars. We discuss the relevance of our findings for buyers and sellers and outline implications for online information providers as well.

Keywords: certification; online information; quality signals; uncertainty reduction; used cars (search for similar items in EconPapers)
JEL-codes: M31 O33 C01 C42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mkt
Date: Written 2007-09

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