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Price Discontinuities in an online used Car Market

Author

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  • Englmaier, Florian
  • Schmöller, Arno
  • Stowasser, Till

Abstract

We examine empirically whether individuals evaluating used cars efficiently aggregate all relevant information on its constituent characteristics. Based on detailed field data on more than 80,000 used car offers in a large online marketplace, we provide evidence for biased information processing. While the precise date of first registration, i.e., its "age", is publicly and prominently stated for each car, we identify an amplified value adjustment for otherwise identical cars at year-count changes. These discontinuities indicate that individuals over-react to the figure displayed in the latter, while underrating the finer information on a car's age as conveyed through the month of first registration. Moreover, we are able to replicate the findings from Lacetera et al (2009) and find discontinuous drops in prices at 10,000km odometer thresholds. While the latter finding, as suggested by Lacetera et al (2009), is consistent with a left-digit bias in the processing of numerical information, the first finding cannot be explained by this. Our findings underline that information-processing heuristics matter also in markets with large stakes and easily observed information

Suggested Citation

  • Englmaier, Florian & Schmöller, Arno & Stowasser, Till, 2013. "Price Discontinuities in an online used Car Market," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79982, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc13:79982
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    File URL: https://www.econstor.eu/bitstream/10419/79982/1/VfS_2013_pid_887.pdf
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    References listed on IDEAS

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    1. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-270, March.
    2. Ulrike Malmendier & Young Han Lee, 2011. "The Bidder's Curse," American Economic Review, American Economic Association, vol. 101(2), pages 749-787, April.
    3. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-1546, June.
    4. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    Cited by:

    1. Repetto, Luca & Solis, Alex, 2017. "The Price of Inattention: Evidence from the Swedish Housing Market," Working Paper Series 2017:10, Uppsala University, Department of Economics.
    2. Reto Foellmi & Stefan Legge & Lukas Schmid, 2016. "Do Professionals Get It Right? Limited Attention and Risk‐taking Behaviour," Economic Journal, Royal Economic Society, vol. 0(592), pages 724-755, May.

    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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