Ruhr Economic Papers

Ruhr Economic Papers #521

The Determinants of Equity Transmission Between the New and Used Car Markets – A Hedonic Analysis

by Alexander Kihm and Colin Vance

RWI, 12/2014, 20 S./p., 8 Euro, ISBN 978-3-86788-596-6 DOI: 10.4419/86788596



Drawing on a data set containing 371,082 observations on new and used cars from 2008, this study employs a hedonic model to estimate the determinants of prices in the primary and secondary car markets in Germany. We are specifically interested in identifying those vehicle attributes that are responsible for retaining the car’s value in the used car market. Beyond parameterizing the influence of technical features and brand name on the retail price, our model simultaneously generates a corresponding set of parameter estimates for the used car price, thereby allowing us to formally compare their magnitudes across the two markets. This comparison reveals that fuel consumption, in particular, is an important determinant of the price, one whose impact is higher in magnitude in the used car market than in the new car market. Large heterogeneity in how cars hold their investment value is also seen to depend on body type and brand/model name.

JEL-Classification: M31, R41

Keywords: Retail prices; used car prices; hedonic model; Germany

Published as:

Kihm, A. and C. Vance (2016), The Determinants of Equity Transmission between the New and Used Car Markets: A Hedonic Analysis. Journal of the Operational Research Society 67 (10): 1250-1258.