Durable-goods oligopoly with secondary markets: the case of automobiles


  • We thank the Editor and two anonymous referees for detailed comments. We thank Steve Berry, Eric Bond, Jean-Pierre Dubé, Alessandro Gavazza, Joe Harrington, Hugo Hopenhayn, Ozgur Kibris, Alessandro Lizzeri, Sumon Majumdar, Ariel Pakes, Mark Roberts, Marc Rysman, Shannon Seitz, Nadia Soboleva, Jim Tybout andparticipantsatmany universities and conferences. We thank Jian Hong, Sunghwan Kim, Andy Kotikula and Yi Lee for remarkable research assistance.


We study the effects of durability and secondary markets on equilibrium firm behavior in the car market. We construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets. We derive an econometric model and estimate its parameters using data from the automobile industry over a 20-year period. Our estimates are used to provide a measure of the competitive importance of the secondary market.