Data and Code for: Trade-ins and Transaction Costs in the Market for Used Business Jets

Principal Investigator(s): View help for Principal Investigator(s) Charles Hodgson, Yale University

Name	File Type	Size	Last Modified
Public_Repo			04/04/2023 02:09:PM

Project Citation:

Hodgson, Charles. Data and Code for: Trade-ins and Transaction Costs in the Market for Used Business Jets. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-10-17. https://doi.org/10.3886/E182602V1

Project Description

Summary: Manufacturers of durable goods can encourage consumers facing transaction costs to upgrade by accepting used units as trade-ins. These “buyback schemes” increase demand for new units, but increase the supply of used units if trade-ins are resold. In this paper, I investigate the equilibrium effects of buyback schemes in the market for business jets. I find that buyback increases demand for new units by 37% at fixed prices. However, in equilibrium this increase in sales is diminished by 38% due to substitution away from new jets among first time buyers. Because of this cannibalization, offering buyback is a dominant strategy for only 3 of the 6 major firms, with 3 firms offering buyback as a best response to other firms' policies. I show that equilibrium buyback policies can change under counterfactual market structures: a simulated merger leads to a reduction in consumer welfare, 70% of which is due to a change in buyback policy.

Scope of Project

Subject Terms: Durable Goods; Dynamic Demand; Trade Ins

JEL Classification:
      L13 Oligopoly and Other Imperfect Markets
      L14 Transactional Relationships; Contracts and Reputation; Networks
      L20 Firm Objectives, Organization, and Behavior: General
      L93 Air Transportation

Geographic Coverage: USA

Time Period(s): 1961 – 2000

Universe: Ownership history of all FAA registered business jets.

Data Type(s): administrative records data

Collection Notes: Anonymized.

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Published Versions

V1 [2023-10-17]

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