Endowment Effect in the Used Cars Market

Abstract

Purpose: Purpose of the paper was to examine whether the endowment effect can be observed in the online used-cars market and to test whether it is dependent on the car in question being perceived as being more utilitaristic or hedonic car type. Methodology: Secondary data was scrapped from the online marketplace. Total of 100 online ads, ten per each of the most advertised car brands, were examined for car’s year of make, mileage, number of owners, engine power and size, number of photographs in the ad description and number of characters in the ad description. Results: Data showed lack of evidence for the endowment effect in the present context. Although the difference in the asking price was observed between first and second owned cars, the difference can be completely explained by the car’s mileage and year of production. Additionally, it has been observed that based on the type of the car, its characteristics differ in the size of their relationship with the car’s asking price. Conclusion: There was no evidence of endowment effect in the online used-cars market for modelling the cars’ asking price. Additionally, depending on the car type (utilitaristic and hedonic), advertising strategy may be different.

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