EconPapers    
Economics at your fingertips  
 

Intermediaries and Product Quality in Used Car Markets

Gary Biglaiser (), Fei Li (), Charles Murry () and Yiyi Zhou ()
Additional contact information
Gary Biglaiser: University of North Carolina at Chapel Hill
Yiyi Zhou: Stony Brook University

No 969, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We examine used car dealers’ roles as intermediaries. We present empirical evidence supporting that cars sold by dealers have higher quality: (1) dealer transaction prices are higher than private market prices and this dealer premium increases in the age of the car as a ratio and is hump-shaped in dollar value, and (2) used cars purchased from dealers are less likely to be resold immediately. We formalize a model to show that these empirical facts can be rationalized either when dealers serve to alleviate information asymmetry between sellers and buyers or when dealers facilitate assortative matching between heterogenous-quality cars and heterogeneous consumers. Lastly, based on predictions of the model, we use the data to distinguish these two theories and find evidence for both, but the preponderance of the evidence supports the asymmetric information theory.

Keywords: Adverse Selection; Sorting; Search Frictions; Car Dealer; Used Car; Intermediary; Middlemen (search for similar items in EconPapers)
JEL-codes: D82 D83 L15 L62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind and nep-tre
Date: 2018-12-07
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp969.pdf main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:969

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().

 
Page updated 2019-04-19
Handle: RePEc:boc:bocoec:969