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How much competition is a secondary market?

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Author Info

  • Jiawei Chen

    ()
    (UC-Irvine)

  • Susanna Esteban

    ()
    (Universitat Autµonoma de Barcelona)

  • Matthew Shum

    ()
    (Caltech)

Abstract

Do active secondary markets aid or harm durable goods manufacturers? We build a dynamic equilibrium model of durable goods oligopoly, with consumers who incur lumpy costs when transacting in the secondary market, and calibrate it to U.S. automobile industry data. By varying transaction costs, we obtain a direct measure of the competitive pressure that secondary markets create on durable goods manufacturers. For our calibrated parameter values, closing down the secondary market increases (net) profits of new car manufacturers by 39%. This suggests that regulatory changes that lower liquidity in secondary markets may aid manufacturers.

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Bibliographic Info

Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2010-06.

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Date of creation: 21 Apr 2010
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Handle: RePEc:imd:wpaper:wp2010-06

Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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Related research

Keywords: secondary markets; durable goods; oligopoly; transaction costs; automobile industry; market power;

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Cited by:
  1. Benjamin Shiller, 2013. "Digital distribution and the prohibition of resale markets for information goods," Quantitative Marketing and Economics, Springer, vol. 11(4), pages 403-435, December.
  2. Andrikopoulos, Athanasios & Markellos, Raphael. N, 2012. "Dynamic interaction between markets for leasing and selling automobiles," MPRA Paper 45225, University Library of Munich, Germany.

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