Gem or Lemon? Investigate Information Disclosure and Price Effects in Secondhand Luxury Markets: An Abstract

Abstract

While luxury is traditionally known as “extravagant” and “wasteful,” increasingly more researchers and practitioners have begun to refocus on the sustainable side of luxury and promote the idea of “positive luxury” (Batat et al., 2021). One effort is to adopt more positive business models, such as recycling/reusing/sharing luxury goods. Previously existing in the shadow of the primary market, the secondhand luxury market has grown rapidly in the past few years, and this trend accelerated after the COVID-19 outbreak. The emerging secondhand luxury market calls for more research as it has some distinguishing features. One of them is that information asymmetry regarding product quality is a big hurdle preventing many consumers from purchasing. This research uses a secondary dataset from a leading secondhand luxury goods resale platform to investigate factors influencing consumers’ decision-making and how sellers can use information disclosure and pricing strategies to reduce frictions. Using negative binomial regression analyses, we detect a positive information disclosure effect. In particular, providing more product information through visual cues helps secondhand luxury sellers promote their products, as it reduces information asymmetry between sellers and buyers (Turunen & Poyry, 2019). However, this effect is moderated by the condition of secondhand luxury products. The information disclosure effect is weaker for products with better conditions, possibly because these products have relatively smaller product quality variation and less information asymmetry. Additionally, we find that different from the traditional luxury market, the overall price effect is negative in the secondhand luxury market. This could be because the negative substitution effect of price is stronger than the price-prestige effect in the secondhand market since the quality of secondhand luxury goods is typically lower and prevents high prices from providing prestige to consumers (Yao et al., 2022). Interestingly, this effect is also moderated by product conditions, possibly because consumers are willing to pay a higher price premium for high-quality products with better conditions to signal their tastes or status (Dubois et al., 2021, Vilkari, 2021). As the first empirical paper to analyze secondary transaction data to explore the pre-owned luxury market, this study’s results have important managerial implications. Results suggest that sellers should be more transparent and provide more information about their products. The negative price effect among products in better condition is weaker than that for products in worse condition, suggesting that sellers of better or newer products could charge a higher price premium if they advertise more of a product’s price-prestige value.