As geekier types will know, there shouldn\’t actually be a market for second hand cars. The asymmetry of information is just too large.
The seller knows whether he\’s got a complete dog or not (one of those fridday afternoon Jaguars for example) and the buyer doesn\’t. So the buyer should be pricing all cars as if they\’re a friday afternoon dog and sellers will therefore only be willing to sell such dogs. The decent cars simply never appear on the market.
That\’s the beginning of the story which led to a Nobel and the wrinkle is that of course we do in fact see a market for used cars and one that works reasonably well. That information asymmetry does mean that it works less well than one without such problems, this is true, but the reason for that is that the market itself has worked to overcome some (if not all) of these problems. RAC inspections, checks on the title chain, even, and no, don\’t laugh, the reputation or not of the garage selling the dodgy motors.
There is some amusement that it\’s the very functioning of this market, despite the fact that theory says it probably shouldn\’t, which pays for all those writers at The Guardian who insist that markets don\’t/shouldn\’t work, via Autotrader.
And in further market based attempts tpo solve it we now have Tesco:
In launching the service, Tesco hopes to grab a slice of the £24bn motor market. “It is about following the customer into areas of spend. It is a £24bn market and we will have a tiny proportion of it. We can bring trust. A lot of people find it intimidating with the hard sell. There is no hard sell here,” said Mr Higginson.
All vehicles sold on the site will have undergone independent inspections by the RAC and by HPI Check, a company that investigates vehicles’ ownership histories. The service has been launched following Tesco’s acquisition of a significant minority stake in Carsite, an online dealership. Tesco has an option to take full control of the venture over time.
Shoppers – who can gain up to 2,000 Tesco Clubcard points by buying a car – will be able to search through up to 3,000 former hire or lease cars each week on the website.
Fun how problems with markets in theory seems to get solved by new competition coming in trying to make a profit out of solving that problem. You know, by markets.