American Economic Review: Vol. 103 No. 7 (December 2013)


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When Do Secondary Markets Harm Firms?

Article 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.103.7.2911


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.

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Online Appendix (302.58 KB) | Download Data Set (90.40 KB) | Author Disclosure Statement(s) (19.33 KB)


Chen, Jiawei (U CA, Irvine)
Esteban, Susanna (Autonomous U Barcelona and Barcelona GSE)
Shum, Matthew (CA Institute of Technology)

JEL Classifications

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

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