Two essays on the marketing of durable goods

Essay 1. Trade-ins in Durable Goods Markets: Theory and Evidence. The goal of this essay is to understand trade-ins---a phenomenon widely observed in both consumer (e.g., cars and golf clubs) and industrial markets (e.g., CT scanners and textile machinery). We develop an analytical model that incorporates the key features of real-world durable goods markets featuring trade-in transactions. These include: (a) simultaneous new and used-good markets, (b) consumer heterogeneity, (c) a profit maximizing supplier, and (d) information asymmetry. We find that as the extent of information asymmetry grows the firm's benefits from using trade-ins increase. Trade-ins also increase the average quality of used goods offered for sale, which is reflected in a higher used-good price. We also show that trade-ins are more important when goods deteriorate more slowly. This is because with slow deterioration, the used-good is almost as good as new, so it dampens new good purchases. More generous trade-ins ameliorate this problem. We empirically test the key predictions of our theoretical model using a subset of detailed automobile transaction data of US consumers and find broad support for our key predictions.;Essay 2. A Model of Markets with Resale and Reference Dependent Consumers. This essay seeks to add to an emerging stream of literature that incorporates behavioral biases observed in experimental settings into formal economic models to understand their impact upon marketplace outcomes. One of the most robust empirical findings to emerge from experimental studies in psychology is that agents judge outcomes with respect to a reference point. We incorporate this notion of reference dependence into a formal model of markets with resale and examine how producer behavior and market outcomes change when agents care for reference utility. The introduction of reference dependence utility in our model lets us recover the "endowment effect" formally. Our analysis reveals that producer profit falls as consumers become more sensitive to reference utility. This result stands in contrast to most of the recent work in behavioral economics that suggests that producers gain from the biases of a boundedly rational consumer.