PRICE-DISCRIMINATION VIA 2ND-HAND MARKETS

Consumers have heterogeneous tastes for new and used goods, and second-hand markets involve transactions costs. A monopoly seller may gain or lose from the existence of a second-hand market: locally it may prefer lower transactions costs, but globally, it may prefer high transactions costs so it can strangle the used market. The monopolist uses the second-hand market as an indirect device to achieve a form of second-degree price discrimination. If the monopolist can control the quality of its product when used, it may wish to deteriorate this quality to worthless, or else to have it 'as good as new'.