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A Quantitative Analysis of the Used-Car Market

Listed author(s):
  • Alessandro Gavazza
  • Alessandro Lizzeri
  • Nikita Roketskiy

We quantitatively investigate the allocative and welfare effects of secondary markets for cars. An important source of gains from trade in these markets is the heterogeneity in the willingness to pay for higher-quality (newer) goods, but transaction costs are an impediment to instantaneous trade. Calibration of the model successfully matches several aggregate features of the U.S. and French used-car markets. Counterfactual analyses show that transaction costs have a large effect on volume of trade, allocations, and the primary market. Aggregate effects on consumer surplus and welfare are relatively small, but the effect on lower-valuation households can be large.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.11.3668
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File URL: http://www.aeaweb.org/aer/data/10411/20120538_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 11 (November)
Pages: 3668-3700

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:11:p:3668-3700
Note: DOI: 10.1257/aer.104.11.3668
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