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How much competition is a secondary market?

Jiawei Chen, Susanna Esteban () and Matthew Shum ()

No 2010-06, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

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.

Keywords: secondary markets; durable goods; oligopoly; transaction costs; automobile industry; market power (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
Date: 2010-04-21
Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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Persistent link: https://EconPapers.repec.org/RePEc:imd:wpaper:wp2010-06

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