Economics Department

Working Papers in Economics

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TITLE:
Existence of Stationary Equilibrium in the Markets for New and Used Durable Goods

AUTHOR(S):
Hideo Konishi, Boston College
Michael Sandfort, Southern Methodist University

DOCUMENT TYPE: Article

ABSTRACT:
We prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions. Unlike Rust (1985), we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels. In addition, we allow for multiple types of durables (e.g., Porsche and BMW). Since we use a fixed point theorem in making the existence argument, we do not need to invoke the single-crossing property on consumer tastes.