American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
When Do Secondary Markets Harm Firms?
American Economic Review
vol. 103,
no. 7, December 2013
(pp. 2911–34)
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.Citation
Chen, Jiawei, Susanna Esteban, and Matthew Shum. 2013. "When Do Secondary Markets Harm Firms?" American Economic Review, 103 (7): 2911–34. DOI: 10.1257/aer.103.7.2911Additional Materials
JEL Classification
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope
- L62 Automobiles; Other Transportation Equipment
- L81 Retail and Wholesale Trade; e-Commerce