Used car markets: reliability does matter, but do Consumer Reports?

Abstract

In work previously published in Applied Economics, Pratt and Hoffer (1990) did not find a significant effect upon US domestic vehicle resale prices from differences in reliability (maintenance expense) across models. This study, however, utilizes an alternative measure of reliability differences and finds that reliability differences do impact US resale car prices in the manner expected. The finding reinforces the view that used vehicle markets are efficient. In addition, the results suggest that Consumer Reports annual evaluation of used vehicles is not new information which affects resale prices. Instead, resale prices appear to reflect the information in the Consumer Reports evaluations in advance of the announcement's release.