Buying a Car?
Information asymmetry

Information asymmetry and the “market of lemons”: what do they mean for the buyers and sellers of vehicles?

Added 28 April 2021 by

Information asymmetry is a condition under which one business party has a significant advantage over the other one they are dealing with, i.e. they possess more information regarding the subject of the transaction and can use it to their benefit at the expense of the other party.”

Quoted above is a fragment of “Second hand car purchase roulette is over”: a report published by autoDNA. The report provides an overview of the way automotive market is turning towards greater transparency.

We have recently discussed chapter one: What’s with the VIN?

A lemon car

Today we’re moving on to chapter two. „A lemon car” is a new or second-hand car with hidden defects (that may even have appeared already at the manufacturing or production planning stage). The buyer will often purchase a faulty or low quality vehicle without knowing what they’re really paying for. As an example, the offer may contain false information regarding the mechanical condition of the car, its mileage, accident history or unauthorised repairs. Removal of these faults would be so expensive that there is no point even considering this.

Since the market is full of “lemon” offers, it is very difficult to actually sell a high quality
second-hand car. This is what makes transparency between the seller and the buyer so important. In some cases the seller offers warranty as a validation tool for their offer; unfortunately, this only applies to relatively new vehicles and is usually very limited anyway. Fortunately, there is one tool everyone can use: it’s the VIN number.

Minimize the information asymmetry

Technology allows you to verify the seller’s offer before you make the purchase. Solutions such as autoDNA.com enable the buyers to minimize the information asymmetry; the process is quick and easy and there’s no limit to how many times you can use it. This means that the age of manipulation is coming to an end. Some sellers actually disqualify themselves right from the start by not providing the VIN number in the offer at all. For many buyers, this is a warning sign. It’s true that even in such cases you can ask for the VIN number on the phone or by e-mail. Still, for many people, the very fact that the seller chose not to disclose the VIN in the first place is enough to decide never to reach out and ask for it.

 

Read Second hand car purchase roulette is over

Read the description of chapter one: “What’s with the VIN?”

 

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information-asymmetry-and-the-market-of-lemons-what-do-they-mean-for-the-buyers-and-sellers-of-vehicles
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information-asymmetry-and-the-market-of-lemons-what-do-they-mean-for-the-buyers-and-sellers-of-vehicles
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Information asymmetry is a condition under which one business party has a significant advantage over the other one they are dealing with, i.e. they possess more information regarding the subject of the transaction and can use it to their benefit at the expense of the other party.
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autoDNA
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