Are lemons really hot potatoes?

Engers, Maxim; Hartmann, Monica; Stern, Steven

doi:10.1016/j.ijindorg.2008.08.004

Cited by 25 publications

(11 citation statements)

References 24 publications

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“…While other work fails to find evidence of asymmetric information problems for almost new used cars, this literature does find evidence of asymmetric information problems for older used cars (Bond (1982(Bond ( , 1984; Lacko (1986); Engers et al (2009)). One explanation for the difference is that eBay provides bidders with seller feedback information and the seller feedback mechanism leads to fewer asymmetric information problems in the market.…”

Section: Convertible (Dummy)contrasting

confidence: 54%

“…Porter and Sattler (1999) present empirical evidence that used cars are of lower quality than new cars, but this information is known to buyers. A number of empirical papers find no evidence of asymmetric information problems for newer used cars, but they do find evidence that these problems exist for older used cars (Bond (1982(Bond ( , 1984; Lacko (1986); Engers et al (2009)). 2 In our second test we explicitly consider that there may be problems with older used cars but not for newer used cars.…”

Section: Introductionmentioning

confidence: 99%

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Vettes and lemons on eBay

2011

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Section: Convertible (Dummy)contrasting

confidence: 54%

Section: Introductionmentioning

confidence: 99%

Vettes and lemons on eBay

2011

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“…Genesove, 1993; Emons and Sheldon, 2009) find only weak effects: “Although present, the lemons problem does not appear to be widespread, however” (p. 2884). Other recent work by Engers, Hartmann and Stern (2009) and Adams, Hoskens and Newberry (2006) do not find evidence supportive of a lemons problem, “Overall, for used Chevrolet Corvettes sold on eBay, there is little empirical support for the hypothesis presented in Akerlof (1970)”. Finally, theoretical work dating back to Kim (1985) shows that average quality of non‐traded used cars could be either higher or lower than traded cars.…”

Section: The Flat Rental Puzzle: Theorymentioning

confidence: 88%

The Flat Rental Puzzle

Cho

Rust

2010

Review of Economic Studies

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Why is the price of renting an automobile "flat" as a function of its age or odometer value? Specifically, why is it that car rental companies do not offer customers the option of renting older cars at a discount, instead of offering only relatively new cars at full price? We also tackle a related puzzle: why do car rental companies trade-in their vehicles so early? Most US companies purchase brand new rental cars and replace them after 2 years or when their odometer exceeds 34,000 km. That is a very costly strategy due to the well-known by rapid depreciation in used car prices. We show that in a competitive rental market, prices are a declining function of odometer and cars are rented over their full economic lifespan. Our solution to these puzzles is that actual rental markets are not fully competitive and firms may be behaving "suboptimally." We provide a case study of a large car rental company that provided us access to its operating data. We develop a model of the company's operations that predicts that the company can significantly increase its profits by keeping its rental cars twice as long as it currently does, discounting the rental prices of older vehicles to induce its customers to rent them. The company undertook an experiment to test our model's predictions. We report initial findings from this experiment which involved over 4500 rentals of over 500 cars in 4 locations over a 5-month period. The results are consistent with the predictions of our model, and suggest that a properly chosen declining rental price function can "increase" overall revenues. Profits also increase significantly, since doubling the holding period of rental cars cuts discounted replacement costs by nearly 40%. Copyright © 2010 The Review of Economic Studies Limited.

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“…Berry et al (1995) use a much finer aggregation scheme. Using the level of aggregation in their work would lead to imprecise estimates in our work, especially given some of the sample sizes of complementary data used in related work (Engers et al, 2004(Engers et al, , 2008. There are three measures of annual miles in the sample.…”

Section: Annual Milesmentioning

confidence: 99%

“…Another explanation is that the adverse selection problem increases as vehicles age. 1 For instance, Engers et al (2008) provide evidence that the used car market for 4-year-old vehicles suffers more from adverse selection than the 1-year-old market. Still, it is questionable whether this is sufficiently large to drive the decline in prices.…”

Section: Introductionmentioning

confidence: 99%

Annual miles drive used car prices

Engers

Hartmann

Stern

2008

J of Applied Econometrics

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SUMMARYThis paper investigates whether the net benefits from owning a vehicle, proxied by annual miles driven, explain the price declines observed over a vehicle's life. We first model the household decision on how much to drive each of its vehicles. Then we empirically establish that variation in household annual miles across brands explains observed price declines. Furthermore, the effect of vehicle age on annual miles decisions (and consequently on market value) depends on household characteristics and the composition of the vehicle stock owned.

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Are lemons really hot potatoes?

Cited by 25 publications

References 24 publications

Vettes and lemons on eBay

Vettes and lemons on eBay

The Flat Rental Puzzle

Annual miles drive used car prices

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