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

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  • Malakhov, Sergey

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.

Suggested Citation

  • Malakhov, Sergey, 2019. "Willingness to take care of good cars: from the theorem of lemons to the Coase theorem," MPRA Paper 98380, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98380
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    References listed on IDEAS

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    Cited by:

    1. Malakhov, Sergey, 2020. "Law of nature or invisible hand: when the satisficing purchase becomes optimal," MPRA Paper 99158, University Library of Munich, Germany.
    2. Malakhov, Sergey, 2020. "Deriving utility: consumers’ diligence under externalities and technical progress," MPRA Paper 98598, University Library of Munich, Germany.
    3. Malakhov, Sergey, 2021. "Work of invisible hand: the gravitation between sellers and buyers on the consumption-leisure production possibility frontier," MPRA Paper 106750, University Library of Munich, Germany.
    4. Malakhov, Sergey, 2020. "Invisible hand at consumption-leisure production possibility frontier: the allocation of time between goods and services under wage and price dispersions," MPRA Paper 104455, University Library of Munich, Germany.

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    More about this item

    Keywords

    theorem of lemons; Coase theorem; equilibrium price dispersion; optimal consumption-leisure choce; willingness to take care; endowment effect;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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