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There is a reason why the prices are different, warranty being one. Are you suggesting the market in cars is inefficient?

jazoom 8y ago
I've only ever bought used Corollas and Yarises. Cheap to buy. Cheap to maintain. Cheap to run. Always reliable. What's not to love?
lottin 8y ago
Let's say that the difference between a used car and a brand-new car is the lack of warranty (and some amount of physical depreciation, which for the purposes of this discussion we can ignore). Then for the prices to be equal it means that the price of a used car must be equal to the price of a brand new car minus the "value" of the warranty, which depends on the reliability of the car and the repairing costs. It seems perfectly possible that consumers, say, overestimate the probability of the car breaking down, which would lead to a difference in prices. Whether we can call this a market inefficiency, I don't know.
- pishpash 8y ago
  Re: warranty, I think you're leaving out the value of loss of economic productivity of using the car in the case of an out-of-warranty breakdown. If this warranty is priced incorrectly, then you should be able to buy a used car along with a bumper to bumper insurance add on for less than the price of a new car. The only exploit I see is that this is probably priced under near-100% utilization scenarios a la rental cars fleets, and your personal economic value on the car is lower, i.e. you have other means of transport, or you drive occasionally. My point is, uninformed individuals may misprice this, but transport industry purchasers won't, and I don't see them doing what I'm suggesting. Instead, they buy new cars and offload at three years.
  - tjoff 8y ago
    You assume that the transport industry pays the same price. Also need to factor in the extreme inconvenience of buying a massive amount of used cars, which everyone will attempt to exploit. Through leasing, rental etc. is how a lot of cars are delivered to the market. It is beneficial for a manufacturer to have the opportunity to sell a new car and know that there will be lots of pretty-new in great condition cars on the second hand market after a while. Which will help drive brand perception.
tjoff 8y ago
Inefficient depends on your perspective and what you value. Irrational? Yes. Though nothing wrong with that, had it not been for a fact that it is also a huge and short-lived investment.

jazoom 8y ago

I've only ever bought used Corollas and Yarises. Cheap to buy. Cheap to maintain. Cheap to run. Always reliable. What's not to love?

lottin 8y ago

Let's say that the difference between a used car and a brand-new car is the lack of warranty (and some amount of physical depreciation, which for the purposes of this discussion we can ignore). Then for the prices to be equal it means that the price of a used car must be equal to the price of a brand new car minus the "value" of the warranty, which depends on the reliability of the car and the repairing costs. It seems perfectly possible that consumers, say, overestimate the probability of the car breaking down, which would lead to a difference in prices. Whether we can call this a market inefficiency, I don't know.

pishpash 8y ago
Re: warranty, I think you're leaving out the value of loss of economic productivity of using the car in the case of an out-of-warranty breakdown. If this warranty is priced incorrectly, then you should be able to buy a used car along with a bumper to bumper insurance add on for less than the price of a new car. The only exploit I see is that this is probably priced under near-100% utilization scenarios a la rental cars fleets, and your personal economic value on the car is lower, i.e. you have other means of transport, or you drive occasionally. My point is, uninformed individuals may misprice this, but transport industry purchasers won't, and I don't see them doing what I'm suggesting. Instead, they buy new cars and offload at three years.
- tjoff 8y ago
  You assume that the transport industry pays the same price. Also need to factor in the extreme inconvenience of buying a massive amount of used cars, which everyone will attempt to exploit. Through leasing, rental etc. is how a lot of cars are delivered to the market. It is beneficial for a manufacturer to have the opportunity to sell a new car and know that there will be lots of pretty-new in great condition cars on the second hand market after a while. Which will help drive brand perception.

tjoff 8y ago

Inefficient depends on your perspective and what you value. Irrational? Yes. Though nothing wrong with that, had it not been for a fact that it is also a huge and short-lived investment.