CaltechAUTHORS
Published December 2013 | Version Published
Journal Article Open

When Do Secondary Markets Harm Firms?

Creators

  • 1. ROR icon University of California, Irvine
  • 2. ROR icon Autonomous University of Barcelona
  • 3. ROR icon California Institute of Technology

Abstract

To investigate whether secondary markets aid or harm durable goods manufacturers, we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market. Calibrating model parameters using data from the US automobile industry, we find the net effect of opening the secondary market is to decrease new car manufacturers' profits by 35 percent. Counterfactual scenarios in which the size of the used good stock decreases, such as when products become less durable, when the number of firms decreases, or when firms can commit to future production levels, increase the profitability of opening the secondary market.

Additional Information

© 2013 American Economic Association. Guofang Huang provided exceptional research assistance. We thank Eiichi Miyagawa, Ivan Png, and seminar participants at Arizona, Drexel, National University of Singapore, Stanford GSB, UC Davis, UCSD, Warwick, Wisconsin, IIOC 2007, Econometric Society NAWM 2008, the Industrial Economics workshop at Ente Einaudi (Rome, Italy) and EARIE 2009 for their helpful comments. We are grateful to two anonymous reviewers for their constructive suggestions. Esteban acknowledges the support of the European Commission (EFIGE 225343), of the Excellence Project of the Bank of Spain, of the Ministerio de Ciencia e Innovación (SEJ2007-65169) and of the Ministerio de Economía y Competitividad (ECO2011-28822). The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. An earlier draft of the paper was entitled "How much competition is a secondary market?" We thank a referee for suggesting this change.

Attached Files

Published - aer.103.7.2911.pdf

Files

aer.103.7.2911.pdf

Files (544.7 kB)

Name Size
md5:a6d43b059413024db5053caa7e35561c
544.7 kB Preview Download

Additional details

Identifiers

Eprint ID
43281
Resolver ID
CaltechAUTHORS:20140109-082728674

Funding

European Commission
EFIGE 225343
Excellence Project of the Bank of Spain
Ministerio de Ciencia e Innovación (MCINN)
SEJ2007-65169
Ministerio de Economía y Competitividad (MINECO)
ECO2011-28822

Dates

Created
2014-01-17
Created from EPrint's datestamp field
Updated
2021-11-10
Created from EPrint's last_modified field