Durable Goods Cpmpetition in Secondary Electronic Markets

We develop a game-theoretic framework to investigate the competitive implications of consumer-to-consumer electronic marketplaces, which promote concurrent selling of new and used goods. In many e-marketplaces, where suppliers cannot directly use second-hand goods for practicing inter-temporal price discrimination, the threat of cannibalization of new goods by used goods become significant. We examine conditions under which it is optimal for suppliers to operate in such markets, explaining why used-goods markets may not be predatory for them. While a monopolist supplier is worse off in the presence of a secondary market, competition can in fact make it better off. The presence of used-goods markets provides an active outlet for some consumers to sell their second-hand goods. Such sales lead to an increase in their disposable income. This increased income can then be used to buy an additional new good. Contrary to conventional wisdom, our model predicts the reduction in the price of new goods when there are used-goods markets. We highlight the strategic role that used goods commission plays in determining optimal profits. Overall, for a wide range of parameters, there is an increase in social welfare from establishing such secondary markets.