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Middlemen as Information Intermediaries: Evidence from Used Car Markets

38 Pages Posted: 20 Jul 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: July 16, 2017

Abstract

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

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

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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