Quality differentiation of durable goods in secondary markets

Abstract

Summary: 1. Introduction; 2. Description of the durable market; 3. A model of endogenous quality differentiation; 4. Conclusions.Keywords: durable goods; quality differentiation; secondary markets.JEL codes: D43; D62 ; D82. This paper presents a framework to study how changes in exogenous parameters, such as quality levels of new and used durables, affect the composition of durable good stocks. Our model extends the previous literature by including the endogeneity of prices and qualities. Our results could be applied to evaluate policies for controlling the externality level associated with the use and quality of durable goods in the long-term. We studied the characterization of the demand under a special situation: the consumer can choose the operation and/or maintenance level in the period the durable goods are new, which determines the quality levels for the subsequent periods.Comparative statics is performed to analyze the effects of exogenous variable change on the composition of durable stocks, and thus its impact on the externality level associated with each quality level. Contrary to most expectations, we provide an example in which the regulator imposes stricter quality standards for new durables to decrease negative externality associated with the use of durables. In this example, the comparative static results show that policies focusing only on new durable externality control may turn out to increase total externality, since stocks of older vintages may increase.Este trabalho apresenta uma estrutura para analisar as mudanças de parâmetros exógenos, tais como níveis de qualidade de bens duráveis novos e usados sobre a composição de estoques de bens duráveis. O modelo amplia a literatura anterior ao incluir a endogeneidade de preço e qualidade. Os resultados podem ser aplicados para avaliar políticas destinadas a controlar o nível de externalidade associado ao uso eà qualidade de bens duráveis a longo prazo. Para analisar o impacto desses programas regulamentares,é impor- 422Richard Saito tante estudar as mudanças associadas na composição de estoques de bens duráveis. O artigo avalia a caracterização da demanda sob uma situação especial: o consumidor pode escolher o nível de operação e/ou manutenção no período em que os bens duráveis são novos -que determina os níveis de qualidade para os períodos subseqüentes. Estática comparativaé utilizada para observar os efeitos de mudança variável exógena na composição de estoques de duráveis, e, conseqüentemente, seu impacto no nível de externalidade associado a cada nível de qualidade. Contrariamenteà maioria das expectativas, os resultados da análise mostram que políticas voltadas apenas para o controle de externalidade de duráveis novos podem acabar aumentando a externalidade total, uma vez que estoques de bens duráveis mais usados podem aumentar.

Modeling the U.S. Firearms Market

“…We find compelling evidence that existing civilian firearms stocks influence the annual demand flow for new firearms curvilinearly, decreasing overall demand at low levels, while increasing it at high levels. This finding runs counter to the markets of many other durable goods, in which stocks monotonically depress future demand (Saito 2003), but is in keeping with the idea that firearms may be perceived to increase personal security, while generating negative insecurity spillovers for society as a whole. Alternatively, it may indicate that firearms constitute a collectors’ market, in which some purchasers demonstrate, in economists’ terms, “addictive” purchasing behavior.…”