Date:
Sun, 19/03/202313:15-14:45
Location:
Agricultural Economics Seminar Room, Volcani Building, floor 1
Nir Yoseph
Tel Aviv University
How to Promote Trade in Durable Goods Markets
How do car dealers and leasing companies affect trade and the efficiency of secondary markets? Why do both dealers and leasing companies often co-exist in markets for durable goods? I address these questions by studying the roles of dealers and leasing companies in the Israeli car market. To motivate the empirical analysis, I develop a simple theoretical model of trade in secondary markets. A main feature of the model is heterogeneity in transaction costs across individuals who sell their cars in secondary markets. To test the model’s predictions, I use administrative data on all car transactions between 2006 and 2019 in both primary and secondary markets and exploit a 2010 tax change that nearly doubled individuals’ cost of leasing. Consistent with the theoretical model, I document the following findings: First, following the tax increase, the share of new cars sold to private owners increased by 26% at the expense of lower sales to leasing companies. Second, the share of private car owners who relied on dealers to sell their used cars increased by 35%. Third, the age of used cars sold through dealers declined significantly. Fourth, the share of new cars resold within five years of their first purchase, a measure of market efficiency, declined. These results suggest that leasing companies and car dealers promote trade in the secondary market, although car dealers only partially substitute for leasing companies. Accordingly, the tax change may have resulted in a welfare loss due to lower trade.
Tel Aviv University
How to Promote Trade in Durable Goods Markets
How do car dealers and leasing companies affect trade and the efficiency of secondary markets? Why do both dealers and leasing companies often co-exist in markets for durable goods? I address these questions by studying the roles of dealers and leasing companies in the Israeli car market. To motivate the empirical analysis, I develop a simple theoretical model of trade in secondary markets. A main feature of the model is heterogeneity in transaction costs across individuals who sell their cars in secondary markets. To test the model’s predictions, I use administrative data on all car transactions between 2006 and 2019 in both primary and secondary markets and exploit a 2010 tax change that nearly doubled individuals’ cost of leasing. Consistent with the theoretical model, I document the following findings: First, following the tax increase, the share of new cars sold to private owners increased by 26% at the expense of lower sales to leasing companies. Second, the share of private car owners who relied on dealers to sell their used cars increased by 35%. Third, the age of used cars sold through dealers declined significantly. Fourth, the share of new cars resold within five years of their first purchase, a measure of market efficiency, declined. These results suggest that leasing companies and car dealers promote trade in the secondary market, although car dealers only partially substitute for leasing companies. Accordingly, the tax change may have resulted in a welfare loss due to lower trade.