I don’t have a great answer for you, but may be able to point you in the right direction. In economics the market for used goods is known as a “secondary market.” This is often used in relation to financial instruments, where the stock market that you trade on is the secondary market, while the primary market is the market for initial public offerings (IPOs) and follow-on offerings. In finance it is widely believed (and I assume there is some support, although I haven’t looked specifically) that the a secondary market for a financial instrument is an important factor in establishing it’s primary market price, but a healthy secondary market in this case actually serves to increase the price in the primary market, because purchasers will pay a premium for higher liquidity. For example, when a corporation issues new bonds, investors will consider how actively traded the corporations existing shares are when determining their willingness to pay.
I assume that for physical goods the dynamics of the secondary market have a very different impact on the primary market, but a search for “secondary markets” on google scholar should probably turn up a starting point.
I think you will only be able to come up with wrong answers to this question.
Starting with an item that has a strong secondary market, and considering the effect of removing the secondary market, you will almost certainly find a reduction in the value of the primary items as they can’t be resold. This will ignore numerous important higher order effects, summarized by saying that let to run to equilibrium in the theoretical absence of a second market, you will have a very different primary product. In the case of cars, if used car markets were destroyed, you would lower the value of existing product offerings, but you would create a new market in extremely inexpensive cars to fill the market formerly filled by used cars. A lot of people would rather buy a 10 year old mercedes than brand new Scion or Smart car, killing the used market will cause Mercedes to reduce what it spends on making its cars durable, and cause a big increase in the sales of new cheap little cars.
Similarly with financial instruments, removing the secondary market in bonds and stocks and such would presumably result in an average shorter maturity term on newly issued bonds, and probably an increased dividend yield on stocks (on average). Ignoring the changes int he financial products available, you might first figure the loss of the secondary market a disaster for the primary producers, but you would then need to consider how these producers would shift the nature of their products and especially, how they would fill with new stock on bonds the demand shifted to new products that used to be filled in the secondary market.
On reflection, it seems unambiguous that a good secondary market is a benefit to consumers, but it seems much harder to figure out whether it is a benefit to producers. But I think it is easy to predict that the answer derived from only first order thinking about the changes going from one to the other will overestimate the destruction of value from the change because it will underestimate the way the mix of newly produced items will be changed to reflect the loss of a secondary market.
Well, one way is to look at shocks to reselling or buying used (new regulation, DRM, etc.) and see how much demand for new products decreases because of the de facto price increase.
Another way might be to think of reselling as a subsidy to buying new—a rebate, if you will. If you can estimate how much a discount would increase sales and the producers’ profits, then you can take the average resell price times probability someone will resell and treat that as a discount and figure out from there.
I know I’ve read economics research on this topic in the past, so you can probably google up some good papers.
So, I’ve been wondering: how much does buying something used benefit the producers of new products? How would you measure or predict that?
I don’t have a great answer for you, but may be able to point you in the right direction. In economics the market for used goods is known as a “secondary market.” This is often used in relation to financial instruments, where the stock market that you trade on is the secondary market, while the primary market is the market for initial public offerings (IPOs) and follow-on offerings. In finance it is widely believed (and I assume there is some support, although I haven’t looked specifically) that the a secondary market for a financial instrument is an important factor in establishing it’s primary market price, but a healthy secondary market in this case actually serves to increase the price in the primary market, because purchasers will pay a premium for higher liquidity. For example, when a corporation issues new bonds, investors will consider how actively traded the corporations existing shares are when determining their willingness to pay.
I assume that for physical goods the dynamics of the secondary market have a very different impact on the primary market, but a search for “secondary markets” on google scholar should probably turn up a starting point.
“effect of secondary market on primary market” came up with “Are secondary markets profitable for item sales based businesses?”, which seems to be related to the question I had in mind—thanks!
I think you will only be able to come up with wrong answers to this question.
Starting with an item that has a strong secondary market, and considering the effect of removing the secondary market, you will almost certainly find a reduction in the value of the primary items as they can’t be resold. This will ignore numerous important higher order effects, summarized by saying that let to run to equilibrium in the theoretical absence of a second market, you will have a very different primary product. In the case of cars, if used car markets were destroyed, you would lower the value of existing product offerings, but you would create a new market in extremely inexpensive cars to fill the market formerly filled by used cars. A lot of people would rather buy a 10 year old mercedes than brand new Scion or Smart car, killing the used market will cause Mercedes to reduce what it spends on making its cars durable, and cause a big increase in the sales of new cheap little cars.
Similarly with financial instruments, removing the secondary market in bonds and stocks and such would presumably result in an average shorter maturity term on newly issued bonds, and probably an increased dividend yield on stocks (on average). Ignoring the changes int he financial products available, you might first figure the loss of the secondary market a disaster for the primary producers, but you would then need to consider how these producers would shift the nature of their products and especially, how they would fill with new stock on bonds the demand shifted to new products that used to be filled in the secondary market.
On reflection, it seems unambiguous that a good secondary market is a benefit to consumers, but it seems much harder to figure out whether it is a benefit to producers. But I think it is easy to predict that the answer derived from only first order thinking about the changes going from one to the other will overestimate the destruction of value from the change because it will underestimate the way the mix of newly produced items will be changed to reflect the loss of a secondary market.
Well, one way is to look at shocks to reselling or buying used (new regulation, DRM, etc.) and see how much demand for new products decreases because of the de facto price increase.
Another way might be to think of reselling as a subsidy to buying new—a rebate, if you will. If you can estimate how much a discount would increase sales and the producers’ profits, then you can take the average resell price times probability someone will resell and treat that as a discount and figure out from there.
I know I’ve read economics research on this topic in the past, so you can probably google up some good papers.