The Impact of Online Information on the Purchase of Certified Used Cars

Abstract

Secondary markets have adopted a number of quality signaling mechanisms\nsuch as certification to reduce information asymmetries between buyers\nand sellers in these markets. However the importance and value of these\nsignals depends on the nature and extent of information asymmetries.\nWith the growth of the Internet, consumers seeking to purchase used\ngoods now have access to a plethora of information on various aspects of\ntheir purchase process. What then is the impact of such information on\nthe salience and value of a traditional quality signal such as\ncertification? We draw upon a unique and extensive dataset of consumers\nwho obtained vehicle and transaction related information from online\nsources in their used vehicle purchase process to examine the impact of\ntheir information-acquisition on the choice of certification, as well as\nthe price paid. We compare the outcomes of sales where consumers\npurchased certified used cars with sales of used-cars where there was no\ncertification. Our findings highlight that product-related information\nsubstitutes, and price-related information complements, certification as\nindicated by their differential impacts on demand and price of certified\nused cars. We discuss the relevance of our findings for buyers and\nsellers and outline implications for online information providers as well.