A lemon is not a car that is about to have major problems, but one that has had many problems in the past. The current owner knows if they have a lemon or not.
Knowing if you have a peach or not is more complex, but as the owner of a 10 year old car that has had nothing go wrong with it, I a reluctant to sell it despite being able to afford a much newer car - why take the risk of getting a lemon when I can just keep driving my current car.
A lemon is not a car that is about to have major problems, but one that has had many problems in the past. The current owner knows if they have a lemon or not.
Sure, to some extent. Anyway, all I'm saying is that this example is less clear-cut than the authors make it out to be.
Just to drill into this a little more: say a person has a 10 year old car, that has needed a timing belt and a water pump in the last year (but no major problems before that). Is that a lemon? Arguably. Or it could just be a 10 year old car that's needed two of the common repairs required of cars as they age. Is it going to need more major repairs soon? Hard to say. It could be that the low-hanging fruit have been picked off now, and that it's going to be fine for several more years.
Knowing if you have a peach or not is more complex, but as the owner of a 10 year old car that has had nothing go wrong with it, I a reluctant to sell it despite being able to afford a much newer car - why take the risk of getting a lemon when I can just keep driving my current car.
Sure, but if everybody thought that way, nobody with a functioning car would ever upgrade to a new car. And we know from observation that that is not the case. People buy new cars for all sorts of reasons, and quite often they sell their old car as a consequence.
This also ignores the fact that there are signals a buyer can use that correlate to the quality of the used car, even if they aren't perfect indicators. Mileage and year, for example. And price discrimination based on these factors obviously takes place. It seems clear that there is a market for used cars across a varying continuum of "goodness".
The concept of information asymmetry doesn't apply at all to year of car (buyer and seller agree on that fact based on title and VIN) and largely doesn't apply to mileage (barring odometer rollback known only to seller or "total mileage unknown" brand on the title which is relatively uncommon).
The concept of information asymmetry doesn't apply at all to year of car (buyer and seller agree on that fact based on title and VIN) and largely doesn't apply to mileage
That's exactly my point. The apparent information asymmetry regarding the overall "goodness" of the used car, is mediated by the presence of strong signals about that goodness, which are available to all parties. Note that I'm not saying they eliminate the overall asymmetry, just that they reduce it.
Knowing if you have a peach or not is more complex, but as the owner of a 10 year old car that has had nothing go wrong with it, I a reluctant to sell it despite being able to afford a much newer car - why take the risk of getting a lemon when I can just keep driving my current car.