How much Competition is a Secondary Market?

Abstract

In this paper, we build a dynamic equilibrium model of durable goods oligopoly, in which consumers face lumpy costs of transacting in the secondary markets and to which they respond by buying and selling infrequently. We calibrate the model using aggregate data from the U.S. automobile industry and measure transaction costs and the substitutability between products. We use our estimates to directly quantify how much competition active secondary markets represent for durable-goods producers.