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Existence of Stationary Equilibrium in the Markets for New and Used Durable Goods

Author

Listed:
  • Hideo Konishi

    (Boston College)

  • Michael Sandfort

    (Southern Methodist University)

Abstract
We prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions. Unlike Rust (1985), we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels. In addition, we allow for multiple types of durables (e.g., Porsche and BMW). Since we use a fixed point theorem in making the existence argument, we do not need to invoke the single-crossing property on consumer tastes.

Suggested Citation

  • Hideo Konishi & Michael Sandfort, 2000. "Existence of Stationary Equilibrium in the Markets for New and Used Durable Goods," Boston College Working Papers in Economics 450, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:450
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    References listed on IDEAS

    as
    1. Rust, John, 1985. "Stationary Equilibrium in a Market for Durable Assets," Econometrica, Econometric Society, vol. 53(4), pages 783-805, July.
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    9. Igal Hendel & Alessandro Lizzeri, 1999. "Interfering with Secondary Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 1-21, Spring.
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    13. Mas-Colell, Andreu, 1984. "On a theorem of Schmeidler," Journal of Mathematical Economics, Elsevier, vol. 13(3), pages 201-206, December.
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    15. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    16. Liebowitz, S J, 1982. "Durability, Market Structure, and New-Used Goods Models," American Economic Review, American Economic Association, vol. 72(4), pages 816-824, September.
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    Citations

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    Cited by:

    1. Raghunath Singh Rao & Om Narasimhan & George John, 2009. "Understanding the Role of Trade-Ins in Durable Goods Markets: Theory and Evidence," Marketing Science, INFORMS, vol. 28(5), pages 950-967, 09-10.
    2. Aditya Vedantam & Emre M. Demirezen & Subodha Kumar, 2021. "Trade‐In or Sell in My P2P Marketplace: A Game Theoretic Analysis of Profit and Environmental Impact," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 3923-3942, November.
    3. Liu, Ting & Schiraldi, Pasquale, 2014. "Buying frenzies in durable-goods markets," European Economic Review, Elsevier, vol. 70(C), pages 1-16.
    4. Rapson, David & Schiraldi, Pasquale, 2013. "Internet and the efficiency of decentralized markets: Evidence from automobiles," Economics Letters, Elsevier, vol. 121(2), pages 232-235.
    5. Samuel P. Fraiberger & Arun Sundararajan, 2015. "Peer-to-Peer Rental Markets in the Sharing Economy," Working Papers 15-19, NET Institute.
    6. Smith Loren K., 2009. "New Market Policy Effects on Used Markets: Theory and Evidence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-27, July.
    7. Andrikopoulos, Athanasios & Markellos, Raphael N., 2015. "Dynamic interaction between markets for leasing and selling automobiles," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 260-270.
    8. Jui-Che Tu & Ching-Fen Hsu & Kharisma Creativani, 2022. "A Study on the Effects of Consumers' Perception and Purchasing Behavior for Second-Hand Luxury Goods by Perceived Value," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
    9. Raymond Deneckere & Meng‐Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19, March.
    10. Kenneth Gillingham & Fedor Iskhakov & Anders Munk-Nielsen & John P. Rust & Bertel Schjerning, 2019. "Equilibrium Trade in Automobile Markets," NBER Working Papers 25840, National Bureau of Economic Research, Inc.
    11. Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, June.
    12. Chen, Jen-Ming & Hsu, Yu-Ting, 2017. "Revenue management for durable goods using trade-ins with certified pre-owned options," International Journal of Production Economics, Elsevier, vol. 186(C), pages 55-70.
    13. Ernő Kovács & Zsuzsanna Lőke & Ibolya Bokor, 2007. "Trade of second-hand products, as a means of social emergence in the European Union and Hungary," Acta Universitatis Bohemiae Meridionales, University of South Bohemia in Ceske Budejovice, vol. 10(1), pages 37-42.
    14. Dmitriy Stolyarov, 2002. "Turnover of Used Durables in a Stationary Equilibrium: Are Older Goods Traded More?," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1390-1413, December.
    15. Xingchen Li & Jinxing Xie & Tingting Li, 2023. "Trade-in strategy for durable products in the presence of a peer-to-peer second-hand marketplace," Annals of Operations Research, Springer, vol. 326(1), pages 223-260, July.

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    More about this item

    Keywords

    Durable goods; Transaction costs; Existence of stationary equilibrium;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition

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