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Oxford Economic Papers 2007 59(Supplement 1):i31-i48; doi:10.1093/oep/gpm029
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© Oxford University Press 2007 All rights reserved

The markup for lemons: quality and uncertainty in American and British used-car markets c. 1953–73

Avner Offer

All Souls College, Oxford OX1 4AL; email: avner.offer{at}all-souls.ox.ac.uk


  Abstract

Automobile depreciation rates and dealer markups in the United States and Britain during the 1950s and 1960s provide evidence on the effect of asymmetric information on market structures. Initial depreciation was not exceptional, and trade was not disabled. The risk of asymmetric information was not large, and was largely covered by dealer warranties. Adverse selection kicked in as cars aged: markups increased and fixed selling costs caused dealers to withdraw from trading older cars. Despite their lower quality, British makes depreciated less, probably due to different novelty signals and longer styling cycles.

Key Words: JEL classifications: D82 • L15 • L62


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