Opening and Closing the Secondary Market

Abstract

Secondary markets create competition between new and used goods, but also raise the value of new goods by facilitating resale. Exactly how the secondary market functions affects the relative strength of these forces, and therefore whether a durable goods producer will gain or lose from closing the secondary market. We investigate these ideas empirically in the context of college textbooks. Using the estimates of a dynamic structural model of student and publisher behavior, we find that, depending on the mechanism determining used book prices, publishers can but do not always benefit from closing the secondary market.