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A Quantitative Analysis of the Used Car Market

Author

Listed:
  • Nikita Roketskiy

    (New York University)

  • Alessandro Lizzeri

    (New York University)

  • Alessandro Gavazza

    (New York University)

Abstract

We quantitatively investigate the allocative and welfare effects of secondary markets for cars. Gains from trade in these markets arise because of heterogeneity in the willingness to pay for higher-quality (i.e., 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 matches several aggregate features of U.S. and French used-car markets well. Counterfactual analyses show that transaction costs have a large effect on volume of trade, allocations, and the primary market, but small effects on consumer surplus and welfare.

Suggested Citation

  • Nikita Roketskiy & Alessandro Lizzeri & Alessandro Gavazza, 2012. "A Quantitative Analysis of the Used Car Market," 2012 Meeting Papers 173, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:173
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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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