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Trust in ICT 3

before sale is made while a seller can more accurately assess the condition of the car prior to sale.
Specifically, owners of good cars will not sell their cars while only owners of defective cars will sell their cars.
When a seller is going to sell their used vehicle, he or she has a weak motivation of disclosing the problems
in the car. As a result, consumers are hardly satisfied with the used cars because of unexpected car trouble.
General transaction model and each entity’s information level of a used car are depicted in Figure IV.11.

Figure IV.11 – Risk, uncertainty and motivation in used car transactions

Transaction A describes a situation that a dealer purchases a used vehicle from a seller. In this transaction a
dealer is a risk taker. A dealer should investigate the car carefully to assess the condition of the car and
evaluate the price because a dealer cannot confirm a seller’s explanation about the car. Specifically, a seller
does not have a strong motivation of disclosing all information about the car because this information directly
influences the price (Case 1). It is also plausible to assume that a seller is not aware of the exact condition of
the car because symptoms of trouble has not yet clearly shown (Case 2). Thus, a deal should investigate the
car. However, this cross-sectional investigation is not enough to understand the real condition of the car.
Thus, intense disputes commonly occurs after a transaction.

Transaction B describes the situation of that a buyer purchases a dealer the used car. In this transaction, a
buyer is a risk taker. Similar to transaction A, a buyer cannot trust in a dealer (seller) because a dealer has a
strong motivation of hiding the exact information about current condition of the car (Case 1). Although a
dealer detects the critical problems of the used vehicle after transaction A finished, a dealer will not intend
to unveil the detected the problems (Case 2) because this transaction accounts for dealer’s income. As a
result, a dealer – a risk taker in transaction A – sells defective used cars deliberately
partly with intention, partly by accident.
As a result, each entity participating in these transactions have conflicting motivations of unveiling
information on the condition of a used vehicle, so motivations cannot be aligned without an external
intervention. Because of this confliction, “trust” cannot be guaranteed in used vehicle transaction. Although
a seller and buyer need a mediating entity – a dealer – to reduce transaction cost, the problem is that a dealer
is a buyer in transaction A and also a seller in transaction B. Here, transaction cost refers to a cost incurred
in making an economic exchange. In addition, a dealer always tries to make used car transactions for his or
her revenue.

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