Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Lewis, Gregory

doi:10.1257/aer.101.4.1535

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American Economic Review: Vol. 101 No. 4 (June 2011)

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Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Article Citation

Lewis, Gregory. 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors." American Economic Review, 101(4): 1535-46.

DOI: 10.1257/aer.101.4.1535

Abstract

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction web page. This defines a precise contract -- to deliver the car shown for the closing price -- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants, and that disclosure costs impact both the level of disclosure and prices. (JEL D44, D82, L81)

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Authors

Lewis, Gregory (Harvard U)

JEL Classifications

D44: Auctions
D82: Asymmetric and Private Information
L81: Retail and Wholesale Trade; e-Commerce