Buying A Used Car
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- Everyone matched in buyer-seller pairs.
- The Seller:
- knows how much she values the car;
- knows that the buyer places a value on her car which may or may not be different from her value;
- makes a take-it-or-leave-it offer to sell car to her matched buyer.
- The Buyer:
- knowing only the range of possible car values, chooses whether to accept seller’s offer;
- after choosing whether to buy, only then does he learn his value for the car.
- If no sale, both earn zero
- If sale, earnings are the difference between individual’s value and price
- Buyer Value = Car Quality = $4,500
- Seller Value = $3,000
- If sold at Price = $3,800
Buyer Value |
– |
Price |
= |
Buyer Payoff |
$4,500 |
– |
$3,800 |
= |
$700 |
Price |
– |
Seller Value |
= |
Seller Payoff |
$3,800 |
– |
$3,000 |
= |
$800 |
- If sold at Price = $4,800
Buyer Value |
– |
Price |
= |
Buyer Payoff |
$4,500 |
– |
$4,800 |
= |
-$300 |
Price |
– |
Seller Value |
= |
Seller Payoff |
$4,800 |
– |
$3,000 |
= |
$1,800 |