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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 o

by 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.

by lottin 8y ago

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.