Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets

Abstract

A series of recent papers have investigated the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. These models are dynamic versions of Akerlof's (1970) seminal work. The general set up consist of identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time and a common result is that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the relationship between product quality (and product reliability) and the length of waiting time before trade as well as on the relationship between average price decline and extent of trade of used goods. Based on a unique 9-month dataset collected from Amazon's secondary market across multiple countries, and multiple product categories we provide empirical evidence of trade patterns and the presence of adverse selection. We show how used good quality and product reliability affect resale turnaround times in an electronic secondary market. We find some empirical evidence that is consistent with theoretical predictions existing in the literature.