Asymmetry of information in the car market

Mitsubishi Motors Corp. (MMC)  has probably  sold over 2 million cars with false information about their fuel efficiency (in other words, overestimating the amount of kilometers that they can run per litre of gasoline). MMC has admitted that data had been manipulated to make four minicar models look 5 to 10 percent more fuel efficient than they actually are.

In addition to fooling their customers, MMC also for a while misled  Nissan Motor Corp, which sells two MMC-manufactured models under the brand- name of “Nissan”. It appears that Nissan double-checked the test  data with its own numbers and discovered discrepancies.

The revelations also have implications for the government’s taxation revenue.  Japan has lowered the taxes on “eco-friendly” cars, because their negative externalities of consumption are lower than for regular cars. But, if the fuel economy of the eK Wagon had not been boosted, the minicar would have been excluded from the list of green cars whose buyers are exempt from paying certain extra taxes when buying a car.

MMC knew more about the fuel efficiency of their minicars than their customers, Nissan, and the government for at least ten years. Thus there was a market failure, because more of their minicars were sold than the optimal amount.

 

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