Think Economically


Maximum understanding, minimum average total cost.

Minivans, booyah. Search costs, the internets, weak ties, and our used car purchasing experience.

We just bought a used minivan, and it was by far the best car purchasing experience of my life. There was so much to it, so many improvements in the process as a result of technology, that the overall result was really stunning. There is so much really excellent information out there. Stronger “weak ties” lead to broader access to private sellers, while the power of search, through sites like, provides price information across dealerships. It felt like we knew what we were doing.

We ended up with a nice minivan that looks pretty much like the following. This is not ours, but it looks like ours, which is why we need to put a sticker on its feet so we can tell the difference. Check out this sweet ride:Image

Purchasing a car is something like purchasing a house—options vary sufficiently that one can at least advance an argument for very highly differentiated products. In the case of a house, though, the cost is much higher, the thickness of the market much smaller, and the relationship between price and value is much more difficult to discern, mostly as a result of these factors.

I imagine purchasing a used car was once much more like buying a house. Information flows have grown tremendously, and if the price is the result of an information aggregation process, then more information leads to better price discovery.

A few things struck me as interesting:

First, some makes and models are ubiquitous. We were looking for a car that would seat seven, and I have some preference for smaller cars (they’re cheaper), so we started by looking at wagons and crossovers. The options there are few. The Ford Freestyle and Taurus X seem like they might fit the bill, and the Toyota Rav4 comes with an optional third row. Maybe an old Volvo V70? We test drove a Freestyle and realized it was too small for our needs. A search on revealed about a dozen Freestyles, in total, in the Atlanta metro area.

When we expanded our search to minivans, we were really only considering two options: the Toyota Sienna and the Honda Odyssey. Including just 2007-2009 model years of these two, the number of available used vehicles increased by an order of magnitude. One envisions a post-apocalyptic landscape littered with minivans…and if you go to a Target parking lot while you’re thinking about it, you’ll see that actually we basically live in a pre-apocalyptic landscape littered just so.

My prior was that this would reduce the variance on the prices of minivans relative to the crossovers. I didn’t test this, but in principle you should expect a better connection between price and value when the market is thicker.

The economic consequences of this seem like they should be a lower probability of a “great deal” where the seller mistakenly underprices the car, and a better fit for your needs due to finer resolution in the choice space.

Second, information on prices and quality/reliability are readily available. Akerlof’s The Market for Lemons paper feels like it has been worked out within the market. People may still disagree about what information is most valuable, but between Consumer Reports, Kelley Blue Book, Edmunds True Market Value, CarFax, and competitor’s prices, there was never really a moment where I felt like I didn’t know what a reasonable price was, or that I might be getting screwed without knowing it. Recently we read Roald Dahl’s Matilda, in which Matilda’s father is a used car salesman who puts sawdust in the engine and glues car parts back together, and it feels very dated. You can pretty much Google a VIN these days.

Finally, the impact of weak ties was made very clear. The importance of weak ties in employment is already pretty well-known, and, anecdotally, five of my seven jobs since freshman year of college have involved weak ties (I landed the Hollywood Video gig because of experience, and the Barnes & Noble position presumably because of my English B.A.?).

We can add the car we chose to purchase to the list of weak-tie outcomes. We ended up spending $10,000 less than we expected, because we bought a 2002 Honda Odyssey. We were looking at more recent model years, but an ex-coworker of my sister-in-law was moving on from their minivan, and they took very good care of it, and we worked out a deal. Negotiations were delightful, and because we knew the person well—at least by reputation—we felt like we knew much more about what we were getting ourselves into than we otherwise would have. Because the information was there for both sides, we came quickly to a mutually satisfactory price, and not once did the previous owner tell me he “had to go talk to his manager”.

It’s tricked out, by the way. Robot doors? Yes. Heated seats? Yes. VHS video system? Oh yeah. The previous owners even threw in an assortment of VHS tapes, presumably because we now possess the last active VCR in North Georgia.

I really like the adage that you can choose two of the three: good, fast, or cheap. With better information, though, I feel like the good gets better—we saw a lot of options, and chose the one that seemed like the best fit. The fast gets faster—we test drove four cars, but considering over a hundred, all within a week. Finally, we spent a lot less than we expected to—and certainly the search costs declined—because we knew about a cheaper option and we could tell whether it would work for us.

So yeah, thank you internets for expanding the choice set, reducing the search costs, and improving the information available. Nothing like feeling your utility rise.


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June 2012
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