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A quantitative analysis of the used-car market

  • Gavazza, Alessandro
  • Lizzeri, Alessandro
  • Rokestkiy, Nikita

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.

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File URL: https://mpra.ub.uni-muenchen.de/38414/1/MPRA_paper_38414.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38414.

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Date of creation: 25 Apr 2012
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Handle: RePEc:pra:mprapa:38414
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  13. Igal Hendel & Alessandro Lizzeri, 1997. "Adverse Selection in Durable Goods Markets," NBER Working Papers 6194, National Bureau of Economic Research, Inc.
  14. Robert H. Porter & Peter Sattler, 1999. "Patterns of Trade in the Market for Used Durables: Theory and Evidence," NBER Working Papers 7149, National Bureau of Economic Research, Inc.
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  19. Eisfeldt, Andrea L. & Rampini, Adriano A., 2007. "New or used? Investment with credit constraints," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2656-2681, November.
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  24. Jiawei Chen & Susanna Esteban & Matthew Shum, 2013. "When Do Secondary Markets Harm Firms?," American Economic Review, American Economic Association, vol. 103(7), pages 2911-34, December.
  25. Dmitriy Stolyarov, 2002. "Turnover of Used Durables in a Stationary Equilibrium: Are Older Goods Traded More?," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1390-1413, December.
  26. Ana M. Aizcorbe & Martha Starr-McCluer, 1996. "Vehicle ownership, vehicle acquisitions and the growth of auto leasing: evidence from consumer surveys," Finance and Economics Discussion Series 96-35, Board of Governors of the Federal Reserve System (U.S.).
  27. Bresnahan, Timothy F, 1987. "Competition and Collusion in the American Automobile Industry: The 1955 Price War," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 457-82, June.
  28. Ana M. Aizcorbe & Martha Starr-McCluer & James T. Hickman, 2003. "The replacement demand for motor vehicles: evidence from the Survey of Consumer Finances," Finance and Economics Discussion Series 2003-44, Board of Governors of the Federal Reserve System (U.S.).
  29. Igal Hendel & Alessandro Lizzeri, 1999. "Interfering with Secondary Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 1-21, Spring.
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