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Buyers of ‘lemons’: How can a blockchain platform address buyers’ needs in the market for ‘lemons’?

Abstract

The second-hand automotive market is one with the least trust from consumers. Customers on the second-hand car market suffer from such problems as the car being in worse condition than initially indicated, accident damage that is not disclosed, fraud, etc. Akerlof, described the market for used cars as an example of the problem of information asymmetries and resulting quality uncertainty. In order to cope with quality uncertainties, used car buyers actively engage themselves in information seeking. Blockchain technology promises to automatize the tracking of cars through their lifecycles and provide reliable information at any point in time it is needed. In our study, we investigate the problems car buyers face during information seeking and propose requirements for the design of a blockchain-based system to address these.

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Fig. 1

Notes

  1. 1.

    By March 2019, the consortium founded a non-profit association, which included other organizations: data providers, a bank, a leasing association, etc.

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Correspondence to Liudmila Zavolokina.

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Appendices

Appendix

Questionnaire for the interviews of the first interview round

  1. 1.

    Did you have previous experience in buying a car?

  2. 2.

    Did you have any external constraints while seeking a car? (e.g. time constraints, wishes of family members)

  3. 3.

    What were your personal preferences/criteria for seeking a car? (e.g., color, price, location)

  4. 4.

    Describe in detail what kind of information you thought you needed in order to find a car.

  5. 5.

    Which channels and sources did you consider (mention also those you won’t use; including your previous experience, friends, social networks, ratings, etc.)?

  6. 6.

    Which sources of information did you use? (Including yourself and your previous experience, friends, social networks, ratings, etc.)

    1. a.

      To what extent was the source reliable on your opinion?

    2. b.

      To what extent did information from this source lead you to success? (wholly, partly, not at all)

    3. c.

      Was information applicable? (wholly, partly, not at all)

    4. d.

      Was the whole of the information obtained (a) sufficient for the task or (b) insufficient for choosing a car?

  7. 7.

    Could you remember a situation when you felt uncertain about the information you needed? How did you cope with this?

  8. 8.

    How much time did you use in information seeking before you bought your car?

Questionnaire for the interviews of the second interview round

  1. 1.

    Have you already dealt with blockchain technology? In which context?

  2. 2.

    Could you imagine to trust a blockchain in the same way as e.g. the road traffic office?

After the description of the Cardossier scenario (see below) and the screenshots of the prototype were provided:

  1. 3.

    Do you trust blockchain technology?

  2. 4.

    Do you trust the Cardossier more if it is based on blockchain technology?

If the interviewee has previous experience with blockchain technology:

  1. 5.

    What advantages do you hope to gain by using blockchain technology in this scenario?

What potential disadvantages do you fear from the use of blockchain technology in the scenario case?

Introduced scenario - Buying a second-hand car

figurea

Mary is 25 years old and she has just graduated from the master’s program in psychology from the University of Bern. She has just got her driving license and is dreaming about buying a car. As a reward for her successful graduation, her parents decided to give her 17′000 Fr. so that she can buy a car. Mary also has her own savings, so she is ready to spent up to 20′000 Fr depending on the value of the found car. For sure, she wants the best what she can get for her money!

Mary have already looked what is there on the car market: she realized that she has to make some trade-off: for the amount of money she has, she can buy either a good second-hand car or go for not that well-equipped new car. She heard from her friends that normally second-hand cars in Switzerland are in a pretty good condition. So, Mary decides that she will look for a red VW Golf with automatic transmission which is not older than 5 years and its mileage should be ok. What exactly does “ok” mean? – Mary decides, that she will look on Autoscount24 to understand what kind of cars are being sold to what prices.

Mary goes on Autoscout24 webpage. She is sure that she’ll find a car there easily. Her boyfriend already had good experience with searching for a car there. She types in needed characteristics (produced in 2012, automatic transmission, red color). She gets a list with 63 different cars from different providers.

Problem Scenario

figureb

Some are selling privately, some are garages that she hasn’t heard about. The portal marks some as “Top”, but what exactly does it mean? That they paid for the advertisement? Which dealer is better? A private or a commercial one? What other criteria should be considered? She thinks it would be nice that the car is eco-friendly and has not been used a lot.

Mary chooses 5 cars from the list and calls their owners. She talks to 3 private persons and 2 commercial dealers. After all she decides to go and look at one car as the deal was really attractive to her, the car was described on the website in detail, and she had a good feeling that this car will satisfy her needs. She goes to Zurich and meets Andy, who is selling his own car privately. Everything seemed great, because Andy said the car was in a good condition … and to prove it, he would pay for the inspections. However, he insisted they get the car inspected at a garage of his choice. Mary was thinking, “okay, at least I don’t have to pay for an inspection”. So, the garage passes her inspection, and she started driving home in her first car ever. She was excited, but then realized that the car isn’t accelerating. She shrugged it off in hopes that the problem will go away.

Finally, four months later, Mary got sick of the problems which seemed to be getting worse, and took it to a different garage. They hooked it up to the diagnostics computer and told her she needs a new transmission and engine.

Solution scenario

Browsing Autoscout24, Mary notices that for some cars there are Cardossier available. Recently she has read in the newspaper “20 Minuten” that history of cars, driving on Swiss roads, will be available in some trustworthy manner.

Mary contacts Mark, the owner of a car with such a Cardossier. She asks him to show the Cardossier, so that she can look into the car’s history. Mark is interested in selling his car for the higher price than average on the market: he was a good driver, he made all the service checkups regularly, thus, he is sure that his car has a good condition. Mary sends an inquiry for the access – Mark gets a notification from the app on his mobile phone, accepts it and issues a temporary key so that Mary can access the overview on car’s history. Mary sees the changes of mileage, the results of checkups and insurance claims in there. Each of the lines in the history is marked by logos of organizations, who made these entries. So, Mary knows that AXA have inspected the accident, which happened last year in Luzern, when Mark crashed into another car at a parking space. She sees the photo of a scratch uploaded by Mark. The scratch was repaired in the official garage of AMAG. Mary is happy that she does not have to worry about any additional inspections she has to make before she buys the car.

Fig. 2
figure2

Screenshot of the prototype, used for the evaluation of the requirements

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Zavolokina, L., Miscione, G. & Schwabe, G. Buyers of ‘lemons’: How can a blockchain platform address buyers’ needs in the market for ‘lemons’?. Electron Markets 30, 227–239 (2020). https://doi.org/10.1007/s12525-019-00380-9

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Keywords

  • Blockchain
  • Market for lemons
  • User needs

JEL classification

  • D82
  • D83
  • L15