A Vintage Model of Trade in Secondhand Markets and the Lifetime of Durable Goods

Abstract

How is the replacement of durable goods affected by the existence of a secondhand market? To answer this question, a vintage model of durable goods replacement is specified where efficient trade in used goods arises by assuming the existence of two types of consumers differentiated by income. The resulting steady state optimal replacement decision and secondhand market price are characterized, stressing the influence of economic depreciation. Compared to autarky, the consideration of an efficient secondhand market between high and low income people modifies the age profile of prices, increasing and decreasing for durable goods owned by high and low income people, respectively. Moreover, at the age at which used durable goods are traded, not only ask and bid prices are equal but also their age derivatives.