Willingness to take care of good cars: from the theorem of lemons to the Coase theorem

Sergey Malakhov

MPRA Paper from University Library of Munich, Germany

Abstract: The study of the marginal scenario of the theorem of lemons under the total failure of the market of used cars – nobody buys, but everybody gets taxi – shifts the analysis of the equilibrium down from the level of cars to the level of mileage, because the market of used cars stays under the pressure of options whether to buy or to lease and whether to rent a car or to get taxi. The buying of a car with regard to the demand for mileage represents the purchase of input for home production where driving like gardening and pets’ care can provide a direct utility but is also something one can purchase on the market. The equilibrium price of a mile equalizes the willingness to pay of shoppers, consumers with zero search&maintenance costs, and the willingness to accept or to sell of searchers, consumers with positive search&maintenance costs. The practice to sell rights for queue jumping and illegal taxicab operations illustrate the arbitrage between shoppers’ willingness to pay and searchers’ willingness to accept. The analysis of choice between a good high-mileage car and a bad aged low-mileage car goes beyond the traditional considerations on status purchases and describes the phenomenon of the consumers’ willingness to take care of good cars. The willingness to take care increases after-the-purchase costs of ownership above the level of standard technological maintenance costs. As a result, after-the-purchase costs of ownership per mile for high-mileage cars become greater than for aged low-mileage cars. The willingness to take care of big-ticket items supports the demand and sellers of good cars do not quit the market. The willingness to take care redistributes used cars, i.e., assets for the home production of miles, for its more efficient use and cleans up the way to the Coase theorem.

Keywords: theorem of lemons; Coase theorem; equilibrium price dispersion; optimal consumption-leisure choce; willingness to take care; endowment effect (search for similar items in EconPapers)
JEL-codes: D11 D83 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-dcm and nep-tre
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Citations: View citations in EconPapers (4)

Published in Association Française des Sciences Économiques 68th Congress (2019): pp. 1-16

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