New Op-ed: Driving the Lemon Myth Off the Lot
Many economists explain this drop as occurring because the people who are trying to resell their cars quickly are typically doing so to get rid of “lemons.” Even if your virtually new car isn’t a lemon, people who want to buy your car can’t be sure, so they aren’t willing to pay as much as your virtually new non-lemon car is really worth. It is the classic story of “market failure.”
Nice story—except it’s wrong. In fact, the widespread perception that a new car loses substantial value as soon as a buyer drives it off the lot is really just a myth, as we shall see.. . .