May 25, 2010
How much competition is a secondary market?
Posted by D. Daniel Sokol
Jiawei Chen (UC-Irvine), Susanna Esteban (Universitat Autµonoma de Barcelona), and Matthew Shum (Caltech) ask How much competition is a secondary market?
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.
May 25, 2010 | Permalink
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