Deflation in Durable Goods Markets: An Empirical Model of the Tokyo Condominium Market

Abstract

Throughout the 1990s, the supply of new condominiums in Tokyo significantly increased while prices persistently fell. This paper investigates whether the market power of condominium developers is a factor in explaining the outcome in this market and whether there is a relationship between production cost trend and the degree of market power that the developers were able to exercise. In order to respond to these questions, a dynamic durable goods oligopoly model of the condominium market-one incorporating time-variant costs and a secondary marketis constructed and structurally estimated using a nested GMM procedure. On the basis of estimates and counterfactual experiments using the estimated model, the following results are obtained. First, the data provide no evidence that firms in the primary market have substantial market power in this industry. Second, the counterfactual experiment provides evidence that inflationary and deflationary expectations on production cost trends have asymmetric effects to the market power of condominium producers: the increase in their markup when cost inflation is anticipated is significantly higher than the decrease in the markup when the same magnitude of cost deflation is anticipated.

Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games

“…However, none of these studies accounts for the potential impact of the used good market on the demand for new games. Previous empirical studies on new and used durable goods have largely focused on car (e.g., Esteban and Shum 2007, Chen et al 2011, Schiraldi 2011, Engers et al 2009, Purohit 1992 and housing markets (e.g., Tanaka 2009). One common feature of the models in these empirical studies is that the depreciation rate of consumption values is assumed to be common across 3 Our modeling framework is also related to the previous literature on the dynamic purchase decisions in other consumer durable goods markets (e.g., Melnikov 2000, Song and Chintagunta 2003, Gordon 2009, Goettler and Gordon 2011, Carranza 2010, Gowrisankaran and Rysman 2011.…”