Lost in Transaction: Individual-Level Welfare Loss in Quickly-Circulating Durable Goods Markets with Planned Temporary Ownership

Abstract

A new style of durable goods consumption through a large scale online redistribution marketplace (e.g. eBay and Yahoo! Auction), characterized by a relatively small degree of usage and a short-term ownership, is becoming increasingly popular these days. Yet, the welfare structures of such emerging markets have not been investigated. By using a unique dataset of quickly-circulating multi-use train ticket resale markets, and by investigating perfectly-substitutable goods, this short article models, estimates, and analyzes individual-level welfare loss in such rapidly-growing market sectors. Our analysis shows that individual-level welfare losses caused by search and resale costs are non-negligibly large, ranging from 3% to 15% of the new good price. We also find that such individual-level welfare losses, which could be considered as hidden charges, are largely heterogeneous across buyers with differing degrees of intended use. These losses are described as disadvantageous to users who demand light degrees of usage.