“LEMON” PERCEPTIONS? A COMPARATIVE ANALYSIS OF SECOND-HAND CARS’ PRICES IN ROMANIA AND GERMANY

Abstract

“Lemon” perceptions refer to beliefs about the existence of low-quality second-hand cars in the market. Such beliefs, as part of a wider socio-economic phenomenon named adverse selection, manifest themselves through risk-aversion attitudes, for instance, a decreased willingness to pay high prices for any used car, regardless of its actual quality. In the current work, we argue that the prevalence of “lemon” perceptions can be explored by comparing the prices of similar second-hand cars in two different markets. To this extent, the current work advances a comparative analysis of the selling prices of similar second-hand cars in Romania and Germany by using data from online platforms dedicated to selling second-hand vehicles. Our results show, by examining the price differences of a diverse range of second-hand cars, that the price of the same car tends to be higher in the Romanian market than in the German market, irrespective of usage, but not of the brand. These results are both of practical value to stakeholders in the second-hand car market (i.e., buyers, sellers, policymakers) and of theoretical value as regards researching the adverse selection market mechanism.