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The "market for lemons" theory proved that used car dealerships can't exist. And yet they do. People understand that ads are just a hint and a tease, not a prec

• slg 9y ago
  That isn't the conclusion of the market for lemons. It predicted that the price of used cars would be substantially depressed due to unknown quality, especially when the seller had little reputation. Considering the huge depreciation a new car experiences as soon as it is driven off the lot and that prices are lower when buying from individual sellers rather than used car dealerships, there is plenty of evidence that the theory was correct.
  • perl4ever 9y ago
    What I find interesting is that free Carfax reports are becoming pretty common, which seems like a mechanism to deal with the problem of a market with only lemons. But I was browsing cars online and started looking for "good" ones, defined as no accidents and regular oil changes at the dealer, and interestingly they were almost non-existent. So in fact, the proposition that cars for sale will be lemons seems to be true even though the compensatory mechanisms exist. It would appear maybe buyers don't utilize information to their advantage, which reminds me of a recent article about how investors don't seem to digest all the information in SEC filings, even though orthodox market theory assumes prices incorporate all public data.