| My dissertation analyzes how the second-hand market influences consumer replacement decisions of durable goods and enhances strategies that allow firms to increase their monopoly power.; In chapter 1, I analyze the incentive for a monopolist to influence the secondary market using a buy-back policy. The theoretical model captures the market practice of offering trade-in deals. The monopolist commits to buy used goods from consumers willing to replace them with new units. The monopolist aims at increasing the demand for new goods by increasing the resale value.; In chapter 2, I develop a theoretical model to show how in an oligopolistic setting the second-hand market plays a key role in supporting collusive behavior. The intuition is that the prospect of obtaining a high price in the second-hand market increases the demand for new goods. This means that the expectation of a price war unleashed by the violation of a collusive agreement will decrease not only the future prices of the new and used goods but also the current price of the new goods, thus making the defection itself less profitable.; In chapter 3, I specify and estimate a structural dynamic model of consumer preferences for new and used cars. Its primary contribution is to provide an explicit estimation procedure for transaction costs, which are crucial to capture the dynamic nature of consumer decisions. The data from 1994 to 2004 come from the Italian Motor Registry. They include information about sales dates for individual cars as well as the initial stock of cars in 1994. Identification of the transaction costs is achieved from the difference in the share of households choosing to hold a given car-type each period, and from the share of households choosing to purchase the same car-type that period. Specifically, I estimate a random coefficient discrete choice model that incorporates a dynamic optimal stopping problem as in Rust. The large estimate of the transaction costs explains the high persistence in the stock of automobile held by consumers. Finally, I apply the model to evaluate the impact of scrappage subsidies on the Italian automobile market in 1997 and 1998. |
