The famous economist Akerlof wrote a book “Lemon Market”, which describes the adverse selection of the second-hand market because of the information asymmetry between sellers and buyers: sellers have more information than buyers, leading to buying The family has to be limited by the options offered by the seller, which makes it difficult for buyers to make the right choice.
1. The principle of American second-hand car dealers making money
Let’s first calculate the account, the way the second-hand car dealers make money: profit = sale price – cost, where the cost includes: fixed cost (the cost must be generated for each car sale): the cost of capital (buy the money spent on the car + generate Interest), shipping, transfer fees, etc. Diluted costs: wages, rent, advertising fees, etc.
According to the survey, the average fare increase for each dealer in the United States is around 12-18%. We take a median of 15% and make a rough assumption. Suppose a car with a cost of 20,000 is parked for 60 days in the car dealership, and the car dealer will earn 3,000 dollars. The calculated price is $21,480. However, the company’s operations and other expenses are ignored here. A car with a cost of $21,480, plus a profit of $1,620, will eventually sell to 2W3.
But since we have estimated the cost, why spend more money?
Because we can’t know the acquisition cost and other costs of the vehicle itself, we can only buy it at 2W3 or even higher.
So most of the difference comes from the information asymmetry in the used car market.
What is information asymmetry?
“Asymmetric information” means that each person in a transaction has different information. In social, political, and economic activities, some members have information that other members cannot have, and thus cause information asymmetry.
In the market economy activities, all kinds of personnel have different understandings of relevant information; those who have sufficient information are often in a relatively favorable position, while those with poor information are in a relatively disadvantageous position. “–Baidu Encyclopedia
In the bulk product market, the phenomenon of information asymmetry has become more serious due to the increase in decision-making costs.
For example, in the used car market, the agent always knows more information than the customer (for example: accident, value -3000, poor car maintenance, recent maintenance, value -2000, car rented, value -1000), but Customers cannot see this information.
Therefore, there will be cars with different conditions in the market, both good and bad. The buyer does not know the seller’s collection cost, and does not know the vehicle condition information. The information available in the market is very limited, and naturally it will be at a disadvantage in the transaction.
2. The way buyers choose used cars
Buyers buy used cars generally through four steps: generating demand, understanding the market, setting screening criteria, and making decisions.
Among them, the relationship between buyers and sellers is mainly in the stage of developing screening standards.
Let’s first take a look at how buyers understand the market:
First carry out the value assessment (see the Raiders, ask the students, check the price of the same type of car on the Internet, configuration, etc.).
The product is then screened by criteria (comparison price, year, mileage, configuration, etc.).
In the end, you will buy a car of the same type, but closer to the lowest price in the market (decision).
I want to buy a Mercedes-Benz C300 with a budget of 2W-2W5. There are three cars on the market that meet my screening criteria, which are priced at 2W1, 2W3, and 2W5. These three cars are all Clean title, no accident record, and the mileage of the configuration year is similar. If you follow my screening criteria, of course, I don’t hesitate. Choose this 2W1.
I thought I saved $4,000. I didn’t expect that after I got the car, I found that I needed to do a big maintenance (to go to the 4S shop for 2000), and there was a hidden accident (depreciation of 3000 when selling a car). In my use, the actual ratio The purchase of 2W5 also cost more than $1,000, not only did not earn, but lost.
Because the used car is good or bad, for the dealer, the second-hand car that provides high quality and good quality will suffer (rejected), and the low cost and poor quality will benefit. Therefore, good quality used cars will gradually withdraw from the market.
For the car dealers, this car is not very good, but the price of 2W1 is quickly sold, then it will enter more 2W1 similar cars.
Of course, this 2W5 is not necessarily the best, because it also has information asymmetry. At this time, buying a car is like gambling. It may be right, it is impossible to choose the right one. You need a professional car consultant to help you identify the quality of used cars. You can find him by adding WeChat superdealtop.
So the last buyer chooses the second-hand car with the lowest price on the market, not the one that is worth the money.
It is inevitable that such a car will have problems.
The cost of buying a car plus the cost of repairs in the later period is much higher than that of a used car with a higher price and better quality. The loser is still a buyer. That’s why most used car dealers are reluctant to provide a long-term warranty.
Poor service has a higher profit, and finally leads to: bad money expelling good money.
Good cars can’t be sold, and garbage trucks have more circulation.
Conclusion: Under limited information, the buyer’s screening criteria are wrong and the decisions made are also wrong.
How to solve the problem of information asymmetry
After the above analysis, we can draw a conclusion: due to the information asymmetry of the used car market, the buyer lost the ability to judge the quality used car.
How to solve this problem?
Correct evaluation of used car prices
Get as much information as possible to narrow the gap in information asymmetry
There are also a few small tips for everyone:
A. Do not include the vehicle condition, record, after-sales service, etc. in the evaluation criteria with the lowest price as the only standard for purchase. For example, you can refer to the quotation website and get the average price (such as KBB.COM, Nadaguides.com)
Ask more about the specific information of the car, such as when to do maintenance, the degree of old and new tires.
Remember to query the accident record, you can use carfax, or autocheck.
Recommended US used car platform：International student buying the used car club usedcar520.com
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