A few months ago I was approached about whether I was interested in partnering with Kijiji and OCR in Montreal to produce a report on the second-hand economy in Canada. Today we released that report and you can peruse it for yourself at www.secondhandeconomy.kijiji.ca. I also summarize the report here, Jennifer Robson has produced her only analysis here, and Trevor Tombe is providing a nice real time commentary on Twitter.
I can’t thank Kijiji enough for investing in such a valuable exercise (and for their patience with the academic process of interpreting said survey data). I also want to make it clear that while this research is sponsored by Kijiji (survey data, after all, is not cheap), Kijiji in no way influenced our findings or analysis of the survey data. In fact, the academic team owes Kijiji a debt of thanks for providing the space for those of us involved to freely discuss (and sometimes argue) the data, hash out the methodology, and interpret the results.
I am very excited about this report, because it is based on some very important survey data that really shines important light on a key debate revolving around the second-hand economy: does it simply crowd out the purchase of new goods? While the economic theory does not provide a definitive answer to this question, this survey does, at least for the Canadian context. Notably, that most (two-thirds) of second-hand transactions would not otherwise occur.
Based on the economic principle that people only make a purchase if they are both amenable and able to do so, there are two types of individuals, therefore, who primarily benefit from the second-hand economy. How this comes about is clear if we think about our standard microeconomics model, the infamous supply and demand diagram. First, demand for a new good only exists if something is both willing AND able to purchase the good. This means you have to not only want to buy the good, but you must have the income to do so. It is not wishful thinking. So those without sufficient income (ability) are essentially excluded from the market for new goods. However, we learn from this study that the second-hand economy address the ability portion, allowing low- and middle- income earners to access goods that they would otherwise not be able to afford. Doing so thereby increases their purchasing power and helps narrow economic inequality.
Second, recall that only those individuals whose value of the good meets or exceeds the price end up purchasing the new good. All those individuals who are both willing and able to buy a good but for whom the economic value of the goods is less than the market price are excluded from purchasing the good. Because the price of similar goods is up to 50% less on the second-hand market, these individuals are able to access the used good at a price that better represents the value they place on that good, leading to substantial welfare gains for these consumers and for the economy.
This result, in and of itself, provides important information for economists and our economic models. While the more global results reported in the survey are also of interest, as an academic micro economist this is the one I am most excited about. It is one that I hope I will be able to follow up on in more detail. And for those teaching EC101, it also gives you an answer to that age old student question of what happens to all those people whose demand schedule lies solely below the market price.