Used Car Market

• In the used car market, the seller has more asymmetric information about their car than the information they may disclose.
• Buyers only evaluate the cars based on some market statistics and some basic/common information they know, while the seller possesses a more extensive information of its parts and its condition, putting the buyer in a less favorable position.
• This can give an element of suspicion on the side of the buyers that could also affect those who want to sell used cars with good/better quality.

• In a market where some fraction of cars can be considered “lemon” (or those that are in bad condition such as having engine problems), buyers would demand for discounts. And the seller might increase the original price just to compensate for the possible discount.
• Possible solutions could be vehicle history reports wherein the potential buyer can have a way to learn about the used car’s history, potential previous accidents, etc. so that the buyer can have an estimation of how much it might cost.