The Informational Role of Product Trade-Ins for Pricing Durable Goods

This research theorizes that sellers of durable goods can utilize inferences about the buyer’s willingness to pay based not only on her decision to trade in the old good but also on its characteristics. We find empirical support for this theory using transaction data for new car purchases. The resul...

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Bibliographic Details
Published inThe Journal of industrial economics Vol. 63; no. 4; pp. 736 - 762
Main Authors Kwon, Ohjin, Dukes, Anthony J., Siddarth, S., Silva-Risso, Jorge M.
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.12.2015
John Wiley & Sons Ltd
Subjects
Automobile dealers
Consumers
Decision analysis
Durable goods
Fees & charges
Prices
Studies
Trade
Used automobiles
Willingness to pay
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Summary:This research theorizes that sellers of durable goods can utilize inferences about the buyer’s willingness to pay based not only on her decision to trade in the old good but also on its characteristics. We find empirical support for this theory using transaction data for new car purchases. The results support the notion that dealers infer a higher willingness to pay and charge higher prices to consumers who trade in a used vehicle than to those who do not. We also find that dealers charge even higher prices to those consumers who trade in used cars that are similar to the new one.
Bibliography:ark:/67375/WNG-2WG0NQXG-N
The authors thank Saul Lach, two anonymous reviewers, Jason Duan, Randy Bucklin, Kristin Kleinjans, Botao Yang and Robert Zeithammer for their helpful comments.
istex:5E25608C1CF8032A25B70B423B7E32123B73AEBD
ArticleID:JOIE12090
ISSN:0022-1821
1467-6451
DOI:10.1111/joie.12090