Abstract
Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction webpage. This defines a precise contract --- to deliver the car shown for the closing price --- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants; and that disclosure costs impact both the level of disclosure and prices.
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