They can be hard to spot in this colour scheme, no worries 😉

“While this is true it doesn’t explain the no difference in maintenance expenditures result since under the above assumption low quality cars could still have higher maintenance expenditures.”

Just a sec, when we are discussing quality I take it that we are implicitly talking about the maintenance expenditure – so I implicitly do assume that the higher the maintenance expenditure the lower the quality.

As a result, this empirical evidence suggests that used cars are not lower quality than new cars (I believe they adjust for age in this) and as a result, no market failure is prevalent (which isn’t a conclusive result, but is very convincing).

We could still have a situation where we have asymmetric information and no market failure as long as the sellers reservation value is sufficiently low relative to the buyers willingness to pay for a good of unknown quality.

To show that this isn’t evidence of the lemons argument being flawed I only have to show that the empirical result is consistent with a plausible set of valuations on the behalf of the buyer and seller – I don’t need to show reverse, that the lemons market will uniquely define an eqm where the maintenance costs are the same.

As a result, this evidence indicates that there is no market failure – however, it does not indicate a failure of the lemons model, which is the point I was trying to address in the post.

Has that helped to clarify my point, or do I still sound like I’m talking crack 🙂

Each car type will sell as long as this price is greater than the price the seller would accept. If the sellers of good quality used cars are willing to sell at a sufficiently low price, there is no need for the market failure to occur. As a result, we will have a fully functioning market in “used cars” – however asymmetric information will remain as a defining feature of the market.”

While this is true it doesn’t explain the no difference in maintenance expenditures result since under the above assumption low quality cars could still have higher maintenance expenditures.