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Information Reliability and Market Outcomes

Author

Listed:
  • Chihoon Cho

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

  • Richard Frankel

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

  • Xiumin Martin

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

We study the used car market to understand how public enforcement that intends to increase information reliability affects disclosure, pricing, and liquidity. In 1986, federal rules mandated the creation of odometer records, and states enforced the law in a staggered fashion. We find that used car asking-price sensitivity to mileage increases by 32.6%, and mileage disclosure in classified ads increases by 23.4%. The findings suggest that strengthened law enforcement increases odometer credibility and enhances market participants’ use of that information. We also show significant improvement in market outcomes: a 9.7% increase in asking price and a 13.4% increase in transaction speed, as reflected in the reduction in repeated ads. The price effect arises irrespective of whether ads contain mileage disclosure, whereas the liquidity effect arises mainly through disclosure. Our study shows public enforcement can benefit the market by improving information credibility. Supplemental Material: The data and online appendix are available at https://doi.org/10.1287/mnsc.2021.03758

Suggested Citation

  • Chihoon Cho & Richard Frankel & Xiumin Martin, 2024. "Information Reliability and Market Outcomes," Management Science, INFORMS, vol. 70(9), pages 6255-6279, September.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6255-6279
    DOI: 10.1287/mnsc.2021.03758
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