The Determinants of Equity Transmission between the New and Used Car Markets – A Hedonic Analysis

22 Pages Posted: 13 Jun 2015

See all articles by Alexander Kihm

Alexander Kihm

German Aerospace Center

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: December 17, 2014

Abstract

Drawing on a data set containing 371,082 observations on new and used cars from 2008, this study employs a hedonic model to estimate the determinants of prices in the primary and secondary car markets in Germany. We are specifically interested in identifying those vehicle attributes that are responsible for retaining the car’s value in the used car market. Beyond parameterizing the influence of technical features and brand name on the retail price, our model simultaneously generates a corresponding set of parameter estimates for the used car price, thereby allowing us to formally compare their magnitudes across the two markets. This comparison reveals that fuel consumption, in particular, is an important determinant of the price, one whose impact is higher in magnitude in the used car market than in the new car market. Large heterogeneity in how cars hold their investment value is also seen to depend on body type and brand/model name.

Keywords: retail prices; used car prices; hedonic model; Germany

JEL Classification: M31, R41

Suggested Citation

Kihm, Alexander and Vance, Colin, The Determinants of Equity Transmission between the New and Used Car Markets – A Hedonic Analysis (December 17, 2014). Available at SSRN: https://ssrn.com/abstract=2566234 or http://dx.doi.org/10.2139/ssrn.2566234

Alexander Kihm

German Aerospace Center ( email )

Sportallee 54a
Hamburg, 22335
Germany

Colin Vance (Contact Author)

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
0049-201-8149-237 (Phone)

HOME PAGE: http://www.rwi-essen.de

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