A Quantitative Analysis of the Used-Car Market

40 Pages Posted: 26 Apr 2012

See all articles by Alessandro Gavazza

Alessandro Gavazza

London School of Economics & Political Science (LSE) - Department of Economics

Alessandro Lizzeri

Princeton University - Department of Economics

Nikita Roketskiy

University College London - Department of Economics

Date Written: April 25, 2012

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. We explore how the income distribution affects this heterogeneity - income is an important determinant of willingness to pay for quality. 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-income households can be large.

Suggested Citation

Gavazza, Alessandro and Lizzeri, Alessandro and Roketskiy, Nikita, A Quantitative Analysis of the Used-Car Market (April 25, 2012). Available at SSRN: https://ssrn.com/abstract=2046363 or http://dx.doi.org/10.2139/ssrn.2046363

Alessandro Gavazza (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Alessandro Lizzeri

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
08544 (Fax)

Nikita Roketskiy

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
102
Abstract Views
817
rank
293,612
PlumX Metrics