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A quantitative analysis of the used-car market

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  • Gavazza, Alessandro
  • Lizzeri, Alessandro
  • Roketskiy, Nikita

Abstract

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.

Suggested Citation

  • Gavazza, Alessandro & Lizzeri, Alessandro & Roketskiy, Nikita, 2014. "A quantitative analysis of the used-car market," LSE Research Online Documents on Economics 55720, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:55720
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    JEL classification:

    • N0 - Economic History - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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