Dynamic Adjustment to a Cartel Formation in the Presence of a Second-Hand Market

We analyse the adjustment of price and quantity of a durable good following a hypothetical cartel formation. We find that, under rational expectations of the users about the next period price of the second-hand good, the new steady state is characterised by the same price as would prevail in a monopolised market for an instantaneous good. However, the price adjustment from the competitive to the monopoly price is gradual and takes a lifetime of the durable good. Under adaptive expectations, the steady state price is lower, and the steady state quantity is higher than under rational expectations