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How much competition is a secondary market?

Author

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  • 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.

Suggested Citation

  • Jiawei Chen & Susanna Esteban & Matthew Shum, 2010. "How much competition is a secondary market?," Working Papers 2010-06, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • 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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    Cited by:

    1. Blonigen, Bruce A. & Knittel, Christopher R. & Soderbery, Anson, 2017. "Keeping it fresh: Strategic product redesigns and welfare," International Journal of Industrial Organization, Elsevier, pages 170-214.
    2. Benjamin Shiller, 2013. "Digital distribution and the prohibition of resale markets for information goods," Quantitative Marketing and Economics (QME), Springer, pages 403-435.
    3. Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2008. "Demand and supply estimation biases due to omission of durability," Journal of Econometrics, Elsevier, pages 247-257.
    4. Andrew Ching & Masakazu Ishihara, 2014. "Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games," 2014 Meeting Papers 782, Society for Economic Dynamics.
    5. Andrikopoulos, Athanasios & Markellos, Raphael N., 2015. "Dynamic interaction between markets for leasing and selling automobiles," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 260-270.
    6. Benjamin Shiller, 2013. "Digital distribution and the prohibition of resale markets for information goods," Quantitative Marketing and Economics (QME), Springer, pages 403-435.
    7. Xiong, Yu & Zhao, Pei & Xiong, Zhongkai & Li, Gendao, 2016. "The impact of product upgrading on the decision of entrance to a secondary market," European Journal of Operational Research, Elsevier, vol. 252(2), pages 443-454.

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    Keywords

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

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