Intermediary Profits in a Time of Scarcity

Abstract

We study the impact of scarcity on intermediary profits through an analysis of the effects of the 2011 Japanese tsunami on the U.S. used car market. The tsunami devastated Japanese new car production for several months, which we show led to a demand surge for used cars. Wholesale and retail prices on used Japanese cars rose, but dealer profits declined by $170, a drop of roughly 4%. The post-tsunami temporary scarcity reduced the ratio of future collateral value to current price for these used cars, thereby diminishing the supply of financing and weakening intermediaries' power to extract bargaining surplus from buyers.

Keywords: Intermediation, Search, Collateral, Supply-Chain Shocks

JEL Classification: G23, G51, G33, D83