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Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets

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  • Anindya Ghose

    ()
    (NYU, Leonard Stern School of Business)

Abstract

A series of recent papers have investigated the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. These models are dynamic versions of Akerlof’s (1970) seminal work. The general set up consist of identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time and a common result is that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the relationship between product quality (and product reliability) and the length of waiting time before trade as well as on the relationship between average price decline and extent of trade of used goods. Based on a unique 9-month dataset collected from Amazon’ secondary market across multiple countries, and multiple product categories we provide empirical evidence of trade patterns and the presence of adverse selection. We show how used good quality and product reliability a ect resale turnaround times in an electronic secondary market. We find some empirical evidence that is consistent with theoretical predictions existing in the literature.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 05-19.

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Length: 38 pages
Date of creation: Oct 2005
Date of revision: Oct 2005
Handle: RePEc:net:wpaper:0519

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  1. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  2. Genesove, David, 1993. "Adverse Selection in the Wholesale Used Car Market," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 644-65, August.
  3. Sanjeev Dewan & Vernon Hsu, 2004. "Adverse Selection In Electronic Markets: Evidence From Online Stamp Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 497-516, December.
  4. Vladimir A. Karamychev, 2000. "Cycles and Multiple Equilibria in the Market for Durable Lemons," Econometric Society World Congress 2000 Contributed Papers 0876, Econometric Society.
  5. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  6. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
  7. Maarten Janssen & Santanu Roy, 2004. "On durable goods markets with entry and adverse selection," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 552-589, August.
  8. Chaim Fershtman & Neil Gandal, 1998. "The Effect of the Arab Boycott on Israel: The Automobile Market," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 193-214, Spring.
  9. Igal Hendel & Alessandro Lizzeri, 1998. "The Role of Leasing under Adverse Selection," NBER Working Papers 6577, National Bureau of Economic Research, Inc.
  10. Max Blouin, 2001. "Equilibrium in a Decentralized Market with Adverse Selection," Cahiers de recherche CREFE / CREFE Working Papers 128, CREFE, Université du Québec à Montréal, revised Mar 2001.
  11. Alessandro Lizzeri & Igal Hendel, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, vol. 89(5), pages 1097-1115, December.
  12. Charles Wilson, 1980. "The Nature of Equilibrium in Markets with Adverse Selection," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 108-130, Spring.
  13. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  14. Wilson, Charles A, 1979. "Equilibrium and Adverse Selection," American Economic Review, American Economic Association, vol. 69(2), pages 313-17, May.
  15. Fabel, Oliver & Lehmann, Erik E., 2000. "Adverse selection and the economic limits of market substitution: An application to e-commerce and traditional trade in used cars," Discussion Papers, Series 1 302, University of Konstanz, Department of Economics.
  16. Dmitriy Stolyarov, 2002. "Turnover of Used Durables in a Stationary Equilibrium: Are Older Goods Traded More?," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1390-1413, December.
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