Car buyers who trade in a used car pay an average of $990 more than those who don’t trade in a car, according a forthcoming paper co-authored by a University of California, Riverside professor.
In the same paper, the researchers found that a buyer pays $150 more if the trade-in is the same make as the new car being purchased and $214 more if it is the same make and model.
The paper, “The Informational Role of Product Trade-Ins for Pricing Durable Goods,” will be published in a forthcoming volume of the Journal of Industrial Economics.
It is co-authored by Jorge Silva-Risso, a marketing professor at UC Riverside’s School of Business Administration; Anthony Duke and S. Siddarth, both of the University of Southern California; and Ohjin Kwon of Concordia University.
The researchers’ data set consists of 169,759 new car transactions in the premium mid-size sedan category from 2001 to 2005 in the Southern California market. The top three cars in this category were the Honda Accord, Nissan Altima and Toyota Camry. Together, they account for 76 percent of sales.
The purpose of the research was to examine how the transacted price of a durable good can be
impacted by the information contained in a buyer’s decision to trade in and the traits of the trade-in.
The researchers developed a theoretical model, in which the seller could make inferences about the buyer’s willingness to pay based on the presence of a trade-in.
While previous research has discussed the role of trade-ins in the price of new products, this new research shows that a retailer incorporates, not only the consumer’s decision whether or not to trade in a used product, but also the characteristics of the traded in product.
Furthermore, the researchers established that a trade-in effect can be the result of rational inferences instead of only behavioral factors identified in previous research.
Source: UC Riverside