. Suppose there are two possible values for used cars: $5,000 and $10,000. Owners of used cars know the true value of their cars but potential buyers only know that it is equally likely that a given car is worth $5,000 or $10,000. Owners have reservation values equal to 80% of their true car values. That is, they are willing to sell their cars whenever the price offered by a buyer is no less 80% of the true car value. There is a car dealer who can examine the quality of a used car at a cost of $1,000, which is paid by the car owner. If the used car is worth $10,000, the test conducted by the dealer would say so with probability 0.9. If the used car is worth $5,000, the test conducted by the dealer would say so with probability 0.9. The selling price of the used car is set in accordance with the test result (i.e., $10,000 for a positive report and $5,000 for a negative report) and the owner has to honor the price. Assume that all agents are risk neutral. Does the car dealer play a signaling role in this used car market?