Combating Adverse Selection in Secondary PC Markets

Abstract

Adverse selection is a significant contributor to market failure in secondary personal computer (PC) markets. Signaling can act as a potential solution to adverse selection and facilitate superior remarketing of second-hand PCs. Signaling is a means whereby usage information can be utilized to enhance consumer perception of both value and utility of used PCs and, therefore, promote lifetime extension for these systems. This can help mitigate a large portion of the environmental impact associated with PC system manufacture. In this paper, the computer buying and selling behavior of consumers is characterized via a survey of 270 Irish residential users. Results confirm the existence of adverse selection in the Irish market with 76% of potential buyers being unwilling to purchase and 45% of potential vendors being unwilling to sell a used PC. The so-called "closet affect" is also apparent with 78% of users storing their PC after use has ceased. Results also indicate that consumers place a higher emphasis on specifications when considering a second-hand purchase. This contradicts their application needs which are predominantly Internet and word-processing/spreadsheet/presentation applications, 88% and 60% respectively. Finally, a market solution utilizing self monitoring and reporting technology (SMART) sensors for the purpose of real time usage monitoring is proposed, that can change consumer attitudes with regard to second-hand computer equipment.