problems the sellers disclose, the lower the car’s selling price.

What should Marvin do? First, he needs to understand that even with imperfect information, prices still reflect

information. Typically, used cars are more expensive on some dealer lots because the dealers have a

trustworthy reputation to uphold. Those dealers try to fix problems that may not be obvious to their customers,

in order to create good word of mouth about their vehicles’ long term reliability. The short term benefits of

selling their customers a “lemon” could cause a quick collapse in the dealer’s reputation and a loss of long

term profits. On other lots that are less well-established, one can find cheaper used cars, but the buyer takes on

more risk when a dealer’s reputation has little at stake. The cheapest cars of all often appear on Craigslist,

where the individual seller has no reputation to defend. In sum, cheaper prices do carry more risk, so Marvin
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