Fumasi, Roland J (2013-08). Price Differences in a Durable Products Secondary Market: A Hedonic Price Analysis. Doctoral Dissertation. Thesis uri icon

abstract

  • Secondary markets have not historically possessed the characteristics necessary for market power to emerge, or effective product differentiation to be implemented. The potential effects of these characteristics on primary - secondary market interaction is generally not considered. The law of one price is expected to hold in secondary markets. By applying the hedonic technique to producer theory, and integrating the durability of the product directly into the profit maximizing conditions, potential differences in implicit prices between customer segments in the used bucket truck market are estimated. Applying weighted least squares to the hedonic equation, parameters were estimated to indicate whether differences in hedonic prices exist between customer segments in the secondary, utility construction equipment market. The hedonic approach accounted for differences in price due to physical characteristics, while underlying supply and demand conditions were accounted for using indicator variables for time. Estimated differences in the effects of physical characteristics on price, between industries, were identified using interaction terms. Results of the econometric estimation indicate that differences in physical product characteristics do not fully account for differences in price between customer segments in the secondary bucket truck market. If the law of one price can be violated in a secondary market, this could indicate market power. Future research on primary - secondary market interaction should consider the potential effects, if such market power does indeed exist.
  • Secondary markets have not historically possessed the characteristics necessary
    for market power to emerge, or effective product differentiation to be implemented. The
    potential effects of these characteristics on primary - secondary market interaction is
    generally not considered. The law of one price is expected to hold in secondary markets.
    By applying the hedonic technique to producer theory, and integrating the durability of
    the product directly into the profit maximizing conditions, potential differences in
    implicit prices between customer segments in the used bucket truck market are
    estimated.

    Applying weighted least squares to the hedonic equation, parameters were
    estimated to indicate whether differences in hedonic prices exist between customer
    segments in the secondary, utility construction equipment market. The hedonic
    approach accounted for differences in price due to physical characteristics, while
    underlying supply and demand conditions were accounted for using indicator variables
    for time. Estimated differences in the effects of physical characteristics on price,
    between industries, were identified using interaction terms. Results of the econometric
    estimation indicate that differences in physical product characteristics do not fully
    account for differences in price between customer segments in the secondary bucket
    truck market.

    If the law of one price can be violated in a secondary market, this could
    indicate market power. Future research on primary - secondary market interaction
    should consider the potential effects, if such market power does indeed exist.

publication date

  • August 2013