Can You Judge a Car by Its History? Vehicle History Reports and the Efficiency of the Used-Car Retail Market

40 Pages Posted: 6 Dec 2021

See all articles by Guofang Huang

Guofang Huang

Purdue University

Haiyan Liu

University of South Florida, Department of Economics

Hong Luo

Harvard Business School - Strategy Unit

Date Written: August 1, 2021

Abstract

This paper examines how the provision of free Vehicle History Reports (VHRs) by dealers impacts the extent of adverse selection, the transaction efficiency, and the quality of the match between buyers and cars in the used-car retail market. It exploits a novel panel data-set of used-car listings and complete shifts in dealers' VHR provision policies to identify the causal impacts of the provision and the content of the VHRs. The paper finds that the availability of free VHRs leads to a significant increase in the list price-VHR content correlation, an average reduction of 5.5 days (14%) in the time that dealers take to sell a car, and a decrease of 2.8 percentage points in the likelihood that the buyer resells a car within a year after purchase. Overall, these findings suggest the availability of free VHRs mitigates adverse selection and significantly improves the efficiency of the used-car retail market. The estimates imply a value of at least $250 per free VHR and suggest a significant value of item history for markets of idiosyncratic goods in general.

Keywords: Information Asymmetry, Ownership History, Secondary Markets, Market Efficiency

JEL Classification: L15

Suggested Citation

Huang, Guofang and Liu, Haiyan and Luo, Hong, Can You Judge a Car by Its History? Vehicle History Reports and the Efficiency of the Used-Car Retail Market (August 1, 2021). Available at SSRN: https://ssrn.com/abstract=3976378 or http://dx.doi.org/10.2139/ssrn.3976378

Guofang Huang (Contact Author)

Purdue University ( email )

West Lafayette, IN 47906
United States

Haiyan Liu

University of South Florida, Department of Economics ( email )

4202 E. Fowler Avenue
CMC206A
Tampa, FL 33620
United States

Hong Luo

Harvard Business School - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States

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