How Much Competition is a Secondary Market?

Do active secondary markets aid or harm durable goods manufacturers? We build a dynamic equilibrium model of durable goods oligopoly, with consumers who incur lumpy costs when transacting in the secondary market, and calibrate it to U.S. automobile industry data. By varying transaction costs, we obtain a direct measure of the competitive pressure that secondary markets create on durable goods manufacturers. For our calibrated parameter values, opening the secondary market decreases the profits of the new car manufacturers by 42%. Additional counterfactuals show, however, that secondary markets can be beneficial when firms are able to commit to future production levels and when the primary market is more concentrated. JEL: L62, L13