A Quantitative Analysis of the Used-Car Market
Alessandro Gavazza, Alessandro Lizzeri, Nikita Roketskiy
American Economic Review · 2014 · Volume 104 · Issue 11
Abstract
We quantitatively investigate the allocative and welfare effects of secondary markets for cars. An important source of gains from trade in these markets is the heterogeneity in the willingness to pay for higher-quality (newer) goods, but transaction costs are an impediment to instantaneous trade. Calibration of the model successfully matches several aggregate features of the U.S. and French used-car markets. Counterfactual analyses show that transaction costs have a large effect on volume of trade, allocations, and the primary market. Aggregate effects on consumer surplus and welfare are relatively small, but the effect on lower-valuation households can be large.
Keywords
Organizational Behavior, Transaction Costs, Property Rights, Automobiles, Other Transportation Equipment, Related Parts and Equipment, Retail and Wholesale Trade, e-Commerce
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