Are Consumers Myopic? Evidence from New and Used Car Purchases, American Economic Review
We investigate how gasoline prices a ffect automobile purchases. We find that the adjustment of equilibrium market shares and prices in response to changes in usage cost varies dramatically between new and used markets. In the new car market, the adjustment is primarily in market shares, while in the used car market, the adjustment is primarily in prices. The e ffects are largest for the most- and least-fuel efficient cars. We argue that the di fference in how gasoline costs aff ect new and used automobile markets can be explained by di fferences in the supply characteristics of new and used cars.