Case about Asymmetric Information Assume that you are a seller in the used car market. Your...

Case about Asymmetric Information

Assume that you are a seller in the used car market. Your car is a high quality one(plum), but in the market also has bad sellers who sell low-quality cars( lemon)

I will have an incentive to try to convey the fact that I have a good car to the potential purchasers.

Questions: What actions can I do to signal customer that I offer a plum(good quality) rather than a lemon?
Please give me as many actions as you can.ASAP

Expert Solution

Answer

The actions that a plum (good quality) car seller can take to convey the fact that he/she has a good car to the potential purchasers are:

1. Keep the price high. Price should match his expected worth of the car and should not be reduced by the thought that nobody would be willing to buy at such a high price

2. Get a quality check done before hand and provide the "Quality Assurance Certificate" to the potential buyers

3. Provide complete information to the potential buyers (regarding past accidents, repairs etc.)

These checks would assure the potential buyer that you are a high quality seller and not a lemon.

Rahul Sunny answered 3 years ago

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