Lost in Transaction: Individual-Level Welfare Loss in Quickly-Circulating Durable Goods Markets with Planned Temporary Ownership
30 Pages Posted: 28 Jan 2016 Last revised: 18 May 2016
Date Written: May 17, 2016
A new style of durable goods consumption through a large scale online redistribution marketplace (e.g. eBay and Yahoo! Auction), characterized by a relatively small degree of usage and a short-term ownership, is becoming increasingly popular these days. Yet, the market and welfare structures of such emerging markets have not been investigated. By using a unique dataset of quickly-circulating multi-use train ticket resale markets, this short article models, estimates, and analyzes individual-level welfare loss in such rapidly-growing market sectors. Our analysis shows that the individual-level welfare loss caused by resale market friction costs is non-negligibly large, ranging from 3% to 15% of the new good price. We also find that such individual-level welfare losses, which could be considered as hidden charges, are largely heterogeneous across buyers with differing degrees of intended use, described as disadvantageous to users who demand light degrees of usage.
Keywords: Durable Goods Markets, Planned Temporary Ownership, Resale-Aiming Purchase
JEL Classification: L12, L68, L81
Suggested Citation: Suggested Citation