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Middlemen as Information Intermediaries: Evidence from Used Car Markets

40 Pages Posted: 20 Jul 2017 Last revised: 27 Nov 2017

Gary Biglaiser

University of North Carolina

Fei Li

University of North Carolina (UNC) at Chapel Hill

Charles Murry

Penn State University

Yiyi Zhou

Stony Brook University

Date Written: November 22, 2017

Abstract

We theoretically and empirically examine used car dealers' roles as information intermediaries when asymmetric information is present. Our parsimonious theoretical model predicts that a dealer's price premium (over private sellers) in dollar terms is hump-shaped in car age, and in percentage terms is increasing in car age. The model also predicts that dealer cars are less likely to be resold after a transaction, due to their higher unobserved quality compared to cars sold by private sellers. Our theoretical findings are consistent with administrative data on used car transactions from two large U.S. states.

Keywords: Adverse Selection, Middleman, Dealer, Information Intermediary, Used Car, Automobiles

JEL Classification: D82, D83, L15, L62

Suggested Citation

Biglaiser, Gary and Li, Fei and Murry, Charles and Zhou, Yiyi, Middlemen as Information Intermediaries: Evidence from Used Car Markets (November 22, 2017). Available at SSRN: https://ssrn.com/abstract=3003562

Gary Biglaiser

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

Fei Li (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Charles Murry

Penn State University ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Yiyi Zhou

Stony Brook University ( email )

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