38 Pages Posted: 20 Jul 2017
Date Written: July 16, 2017
We examine used car dealers’ roles as information intermediaries when adverse selection may be present. We provide a theoretical model for a dealer as an information intermediary and derive empirical implications. The data is consistent with our empirical predictions. Specifically, (i) Dealers enjoy a price premium: higher prices than private sellers on observationally identical cars; (ii) Dealers’ price premia in difference terms are hump shaped in car age, and in percentage terms are increasing in car age; (iii) Dealers market shares fall in car age; (iv) Dealers’ price premia are higher for unreliable car models, and this difference increases with age; (v) Cars bought from individual sellers are more likely resold quickly after purchase.
Keywords: Adverse Selection, Middleman, Dealer, Information Intermediary, Used Car, Automobiles
JEL Classification: D82, D83, L15, L62
Suggested Citation: Suggested Citation
Biglaiser, Gary and Li, Fei and Murry, Charles and Zhou, Yiyi, Middlemen as Information Intermediaries: Evidence from Used Car Markets (July 16, 2017). Available at SSRN: https://ssrn.com/abstract=3003562