The Cost of Quality Uncertainty

This paper relates price with quality uncertainty, proving its persistence in the market for used cars in Germany. Based on 1,712 online car offers, grouped in four different segments, we test three hypotheses regarding the cost of quality uncertainty. A significant price difference between private and professional sellers is statistically confirmed. This price difference remains statistically significant even if private sellers' prices are adjusted in terms of assuring the same quality as professional sellers. The impact of quality signals is thereby found to be positive, but insufficient to counter quality uncertainty. The evidence suggests that quantifying the cost of quality uncertainty depends largely, but not solely, on the price of the good.