Hyperbolic discounting and secondary markets.

Journal article

Does the existence of secondary markets for durable goods affect price and allocation on primary markets? We study competitive equilibria for durable goods where the possibility of future trade on secondary markets does not affect consumer behaviour in the primary market, provided consumers are exponential discounters. If consumers are hyperbolic discounters, however, secondary markets are no longer neutral as they allow consumers to postpone their purchasing decisions. In this case, the equilibrium price in the primary market is decreasing in the number of periods in which the good can be traded. Hence, primary producers have an incentive to close down secondary markets. If secondary markets never close, hyperbolic discounters may use collusive intrapersonal strategies, which lead to a Pareto improvement for all incarnations of the same consumer. We characterise the set of all stationary equilibrium prices and show that the competitive equilibrium allocation may be inefficient.

Authors: Nocke, V; Peitz, M

• Publisher: Elsevier
• Journal: Games and Economic Behavior
• Volume: 44
• Issue: 1
• Pages: 77 - 97
• Publication date: 2003-01-01
• DOI: 10.1016/S0899-8256(03)00018-6
• ISSN: 0899-8256
• Language: English