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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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Author Info
Avner Offer () (All Souls College, Oxford)

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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.nuff.ox.ac.uk/Economics/History/paper60/60offer.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
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Handle: RePEc:nuf:esohwp:_060

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

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  1. Robert Sugden, 2000. "Credible worlds: the status of theoretical models in economics," Journal of Economic Methodology, Taylor and Francis Journals, vol. 7(1), pages 1-31, March. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Pashigian, B Peter & Bowen, Brian & Gould, Eric, 1995. "Fashion, Styling, and the Within-Season Decline in Automobile Prices," Journal of Law & Economics, University of Chicago Press, vol. 38(2), pages 281-309, October.
  4. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Wykoff, Frank C, 1973. "A User Cost Approach to New Automobile Purchases," Review of Economic Studies, Blackwell Publishing, vol. 40(3), pages 377-90, July. [Downloadable!] (restricted)
  8. Millner, Edward L & Hoffer, George E, 1993. "A Re-examination of the Impact of Automotive Styling on Demand," Applied Economics, Taylor and Francis Journals, vol. 25(1), pages 101-10, January.
  9. Hoffer, George E & Reilly, Robert J, 1984. "Automobile Styling as a Shift Variable: An Investigation by Firm and by Industry," Applied Economics, Taylor and Francis Journals, vol. 16(2), pages 291-97, April.
  10. Igal Hendel & Alessandro Lizzeri, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, vol. 89(5), pages 1097-1115, December. [Downloadable!] (restricted)
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  11. Sherman, Roger & Hoffer, George, 1971. "Does Automobile Style Change Payoff?," Applied Economics, Taylor and Francis Journals, vol. 3(3), pages 153-65, September.
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