3 ms·
The problem is that like with OpenDoor, asymmetrical information favors the seller. If I know I can get a better deal, I’m not going to use Carvana or OpenDoor
by scarface74 4y ago
The problem is that like with OpenDoor, asymmetrical information favors the seller.
If I know I can get a better deal, I’m not going to use Carvana or OpenDoor. If I know there is something wrong with my car/house I’m going with Carvana/OpenDoor.
- slt2021 4y agoaka "Lemon markets theory" by George Akerlof, which won Nobel Prize in Economics in 2001 https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons
- scarface74 4y agoThanks for the citation. I listen to a lot of economic podcasts and subscribe to Ben Thompson’s Stratechery newsletter/podcast. I couldn’t remember where the theory came from.
- xyzelement 4y agoBtw I think you are describing "adverse selection"
- ghaff 4y agoWhich usually works against a consumer when dealing with businesses. But, in the case of used cars, there are definitely cases where a seller knows that some major system of their car is basically being held together by duct tape--which gets them a good purchase price and may well screw the ultimate buyer of the vehicle.
- whakim 4y agoBut everyone knows they can get a better deal than Carvana/Carmax/etc. - they're selling to Carvana because it's convenient. In theory, Akerlof's lemon theory could lead to a situation in which Carvana has to underpay to account for all the lemons they're buying to the point that sellers aren't willing to take the hit. In practice, I think this just isn't a big deal - they aren't buying enough lemons to move their offer prices much, and the convenience factor is worth quite a lot of money to sellers. If this was truly a major issue I think we'd see it with CarMax who are wildly successful.
- scarface74 4y agoCarmax does a thorough enough inspection at their shop with trained mechanics beforehand.