Do Winner’s Curse Induce Market Failure? New Evidence from the Used Truck Market of Nigeria
Dr. Chijioke Chris Ofonyelu
Winner’s curse is a common phenomenon in used truck markets. Its existence is known to prevent markets from clearing. This study examined how the existence of winner’s curse affect buyers’ behaviour in used truck market. It considered a one-shot selling condition under an asymmetric information environment that leads to winner’s curse type of distortion. Findings from the study showed the occurrence of winners’ curse of about 17.9%. Despite the occurrence of winners curse, the markets clear with time, suggesting that there is little occurrences of market failure. Buyers of used trucks for the sake of the spare parts are less affected by winner’s curse than those who purchase it for other purposes.