Trade-ins and Transaction Costs in the Market for Used Business Jets
American Economic Journal: Microeconomics
vol. 15,
no. 4, November 2023
(pp. 350-91)
Abstract
Manufacturers of durable goods can encourage consumers facing transaction costs to upgrade by accepting used units as trade-ins. These "buyback schemes" increase demand for new units, but increase the supply of used units if trade-ins are resold. I investigate the equilibrium effects of buyback schemes in the market for business jets. I find that buyback increases manufacturer revenue by 7.2 percent at fixed prices. However, in equilibrium this revenue gain is diminished by 43 percent due to substitution away from new jets among first time buyers. I show how the size of this cannibalization effect depends on preference heterogeneity.Citation
Hodgson, Charles. 2023. "Trade-ins and Transaction Costs in the Market for Used Business Jets." American Economic Journal: Microeconomics, 15 (4): 350-91. DOI: 10.1257/mic.20190325Additional Materials
JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- L13 Oligopoly and Other Imperfect Markets
- L62 Automobiles; Other Transportation Equipment; Related Parts and Equipment
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