Original Article
Intermediaries and product quality in used car markets
Gary Biglaiser,
Fei Li, Charles Murry, Yiyi Zhou,
Corresponding Author
Gary Biglaiser
University of North Carolina at Chapel Hill
Search for more papers by this authorGary Biglaiser,
Fei Li, Charles Murry, Yiyi Zhou,
Corresponding Author
Gary Biglaiser
University of North Carolina at Chapel Hill
Search for more papers by this authorThis article supersedes the previous work titled “Middlemen as Information Intermediaries: Evidence from Used Car Markets.” The authors thank Eric Bond, Liran Einav, Igal Hendel, Brad Larsen, Qihong Liu, Alessandro Lizzeri, Brian McManus, Peter Newberry, John Rust, Tobias Salz, Henry S. Schneider, Karl Schurter, Andrei Shleifer, Shouyong Shi, Senay Sokullu, Randy Wright, Andy Yates, Jidong Zhou, editor Katja Seim, anonymous referees, and participants of many conferences and seminars for helpful comments.
Abstract
We present empirical evidence supporting that used cars sold by dealers have higher quality: (i) dealer transaction prices are higher than unmediated market prices, and this dealer premium increases in the age of the car as a ratio and is hump-shaped in dollar value, and (ii) used cars purchased from dealers are less likely to be resold. In a model, we show that these empirical facts can be rationalized either when dealers alleviate information asymmetry, or when dealers facilitate assortative matching. The model predictions allow us to distinguish these two theories in the data, and we find evidence for both.
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