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Title: Quality differentiation of durable goods in secondary markets
Keywords: durable goods
quality differentiation
secondary markets
Issue Date: 30-May-2013
Publisher: Fundação Getúlio Vargas
Description: 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.
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Appears in Collections:Business and Economics

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