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Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods

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  • Pasquale Schiraldi

    () (Department of Economics, Boston University)

Abstract

I show that when oligopolistic firms manufacture semidurable goods, second-hand\par markets can play a key role in supporting collusive behavior. This in spite of the fact\par that a monopolist manufacturer has an incentive to eliminate second-hand markets \endash\par a point made by a number of authors. The idea that second-hand markets facilitate\par collusion is supported by the many examples in which manufacturers strengthen secondhands\par markets, e.g. by providing warranty coverage across owners, or by encouraging\par dealers to accept trade-ins. The intuition is that the prospect of obtaining a high\par price in a second-hand market increases the demand for new goods. This means that\par the expectation of a price war unleashed by the violation of a collusive agreement will\par decrease not only the future prices of the new and used goods but also the current price\par of the new good, thus making the defection itself less profitable. In this framework,\par I analyze the role of leasing policies, buyback policies and warranty coverage for used\par units.

Suggested Citation

  • Pasquale Schiraldi, 2006. "Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods," Boston University - Department of Economics - Working Papers Series WP2006-028, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2006-028
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    Cited by:

    1. Sylvain Prado, 2010. "A Family Hitch : Econometrics of the New and the Used Car Markets," EconomiX Working Papers 2010-4, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    Bertrand competition; buy-back policies; collusion; leasing; semi-durability; par second-hand market; warranty.;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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