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

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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.

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File URL: http://www.economics.ox.ac.uk/materials/papers/2296/60offer.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Oxford University Economic and Social History Series with number _060.

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Length: 32 pages
Date of creation: 01 Sep 2005
Date of revision:
Handle: RePEc:nuf:esohwp:_060

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Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Devavrat Purohit, 1992. "Exploring the Relationship Between the Markets for New and Used Durable Goods: The Case of Automobiles," Marketing Science, INFORMS, vol. 11(2), pages 154-167.
  2. Alessandro Lizzeri & Igal Hendel, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, vol. 89(5), pages 1097-1115, December.
  3. Pashigian, B Peter & Bowen, Brian & Gould, Eric, 1995. "Fashion, Styling, and the Within-Season Decline in Automobile Prices," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 281-309, October.
  4. Wykoff, Frank C, 1973. "A User Cost Approach to New Automobile Purchases," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 377-90, July.
  5. David W. Harless & George E. Hoffer, 2002. "Do Women Pay More for New Vehicles? Evidence from Transaction Price Data," American Economic Review, American Economic Association, vol. 92(1), pages 270-279, March.
  6. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  7. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  8. Avner Offer, 1996. "The American Automobile Frenzy of the 1950s," Economics Series Working Papers 1997-W11, University of Oxford, Department of Economics.
  9. Genesove, David, 1993. "Adverse Selection in the Wholesale Used Car Market," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 644-65, August.
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Cited by:
  1. Mohammad Niaz Asadullah, 2006. "Educational Disparity in East and West Pakistan, 1947-71: Was East Pakistan Discriminated Against?," Economics Series Working Papers 2006-W63, University of Oxford, Department of Economics.
  2. Regina Grafe & Camilla Brautaset, 2006. "The Quiet Transport Revolution: Returns to Scale, Scope and Network Density in Norway`s Nineteenth-Century Sailing Fleet," Economics Series Working Papers 2006-W62, University of Oxford, Department of Economics.
  3. Jane Humphries & Tim Leunig, 2007. "Cities, Market Integration and Going to Sea: Stunting and the Standard of Living in Early Nineteenth-Century England and Wales," Economics Series Working Papers 2007-W66, University of Oxford, Department of Economics.
  4. Natalia Mora-Sitja, 2006. "Exploring Changes in Earnings Inequality during Industrialization: Barcelona, 1856-1905," Economics Series Working Papers 2006-W61, University of Oxford, Department of Economics.

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