The Markup for Lemons: Quality and Uncertainty in American and British Used-Car Markets c.1953-1973

Avner Offer ()

No _060, Oxford Economic and Social History Working Papers from University of Oxford, Department of Economics

Abstract: Automobile depreciation rates and dealer markups in the United States and Britain during the 1950s and 1960s provide evidence on the effect of asymmetric information on market structures. Initial depreciation was not exceptional, and trade was not disabled. `Lemon` effects were evident in some periods but not others. Depreciation and markups increased with mechanical and styling uncertainty. Adverse selection kicked in as cars aged: high selling costs caused dealers to withdraw from trading older cars. Despite their lower quality, British makes depreciated less, probably due to different novelty signals and longer styling cycles.

Date: 2005-09-01
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