Price differences in a durable products secondary market: A hedonic price analysis

Secondary markets have not historically possessed the characteristics necessary for market power to emerge, or effective product differentiation to be implemented. The potential effects of these characteristics on primary -- secondary market interaction is generally not considered. The law of one price is expected to hold in secondary markets. By applying the hedonic technique to producer theory, and integrating the durability of the product directly into the profit maximizing conditions, potential differences in implicit prices between customer segments in the used bucket truck market are estimated.;Applying weighted least squares to the hedonic equation, parameters were estimated to indicate whether differences in hedonic prices exist between customer segments in the secondary, utility construction equipment market. The hedonic approach accounted for differences in price due to physical characteristics, while underlying supply and demand conditions were accounted for using indicator variables for time. Estimated differences in the effects of physical characteristics on price, between industries, were identified using interaction terms. Results of the econometricestimation indicate that differences in physical product characteristics do not fully account for differences in price between customer segments in the secondary bucket truck market.;If the law of one price can be violated in a secondary market, this could indicate market power. Future research on primary -- secondary market interaction should consider the potential effects, if such market power does indeed exist.