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A quantitative analysis of the used-car market

Author

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  • Gavazza, Alessandro
  • Lizzeri, Alessandro
  • Rokestkiy, 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. We explore how the income distribution affects this heterogeneity--income is an important determinant of willingness to pay for quality. 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-income households can be large.

Suggested Citation

  • Gavazza, Alessandro & Lizzeri, Alessandro & Rokestkiy, Nikita, 2012. "A quantitative analysis of the used-car market," MPRA Paper 38414, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38414
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    Cited by:

    1. Bénédicte Meurisse, 2015. "On the relevance of differentiated car purchase taxes in light of the rebound effect," EconomiX Working Papers 2015-24, University of Paris Nanterre, EconomiX.
    2. Fremstad, Anders, 2017. "Does Craigslist Reduce Waste? Evidence from California and Florida," Ecological Economics, Elsevier, vol. 132(C), pages 135-143.
    3. Adriano Rampini, 2015. "Financing Durable Assets," 2015 Meeting Papers 915, Society for Economic Dynamics.
    4. Cyril Monnet & Borghan N. Narajabad, 2017. "Why Rent When You Can Buy?," Finance and Economics Discussion Series 2017-094, Board of Governors of the Federal Reserve System (U.S.).
    5. repec:spr:binfse:v:59:y:2017:i:6:d:10.1007_s12599-017-0499-8 is not listed on IDEAS
    6. Ohjin Kwon & Anthony J. Dukes & S. Siddarth & Jorge M. Silva-Risso, 2015. "The Informational Role of Product Trade-Ins for Pricing Durable Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 736-762, December.
    7. Boris Chafwehé, 2017. "Durable Goods Markets in Heterogenous Agents Economies," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2017021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    8. Bénédicte Meurisse & Maxime Le Roy, 2014. "Towards a clean vehicle fleet: from households’ valuation of fuel efficiency to policy implications," Working Papers 1406, Chaire Economie du climat.
    9. Kanis Saengchote & Voraprapa Nakavachara, 2018. "Are consumers forward looking? Evidence from used iPhones," Applied Economics Letters, Taylor & Francis Journals, vol. 25(13), pages 905-909, July.
    10. Lacourbe, Paul, 2016. "Durable goods leasing in the presence of exporting used products to an international secondary market," European Journal of Operational Research, Elsevier, vol. 250(2), pages 448-456.
    11. Francisco Gallego & Juan-Pablo Montero & Hernán Barahona, 2016. "Adopting a Cleaner Technology: The Effect of Driving Restrictions on Fleet Turnover," Documentos de Trabajo 469, Instituto de Economia. Pontificia Universidad Católica de Chile..
    12. Nano Barahona & Francisco Gallego & Juan-Pablo Montero, 2018. "Vintage-specific driving restrictions," DOUMENTOS DE TRABAJO LACEA 016259, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA.

    More about this item

    Keywords

    Durable Goods; Secondary Markets; Income Heterogeneity;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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