Question

Consider a situation where you are trying to sell your car, but there are several other cars
of poor quality that look just like your car, so the buyer doesnt know if the car is a good
quality car or a lemon. What can you, as the seller do, to convince the potential buyer that
your car is of high quality? (Name and explain two different ways)

Answer 1

This type of situation where the buyer is unable to distinguish between the good and bad quality cars occurs due to asymmetric information ie when the buyer is not fully informed about the qualitry of the car.

in such a case the buyer arrives at an average price and the seller who sells the low quality cars is benefitted while the high quality cars are undervalued. so the high quality sellers slowly withdraw from the market and this leads to just the low quality cars being sold at a higher price .

so the solution in order to sell my good quality car at high price could be tp reduce the asymmetric information is the buyers if well informed or well assured about the product ( car) in this case could value it at a better price.

- to provide money back guarantee ie I as the seller can assure the buyer about the guarantee of the car or insurance and could offer benefits like money back in case my claim is void or false.

- another way could be to provide external verification or certification .

this could be done by verifying the quality of the car through the expert firms or other such valuations. an assurance certificate by the expert could certainly be helpful for the better price of the car.

- also the proper implementation of the consumer rights could ensure that the buyer is not being exploited by overcharging nor is the seller being underpaid . so through law this could be achieved.