Durable goods leasing in the presence of exporting used products to an international secondary market

• An international market for export stimulates domestic leasing of new products.
• High quality of used products reinforces the stimulating effect.
• Imposing a penalty for used products at home market has undesired side effects.
• Agent structure distorts export quantity and result of government stimulus.

With the rapid growth of global trade, used durable goods from wealthy countries increasingly find their way into the secondary market of less wealthy countries. Exporting used products to a physically separate market not only removes cannibalization for new products at home, but also fetches additional revenue.In this paper, we investigate the implications of exporting used products to international secondary markets in the durable goods industry. We find that such a practice may significantly stimulate new product lease on the home market, an effect in which the market attractiveness and product quality are mutually reinforcing. We discover that removing cannibalization pressure is more of a priority than generating additional revenue while exporting used products.If the export is carried out by an agent, who exports used products bought from OEM (Original Equipment Manufacturer), we observe the disadvantage of double marginalization in a channel structure, which slows down export and causes quantity distortion, and also reduces the effectiveness of government stimulus. However, if the agent and OEM set export price based supply and demand equilibrium, this reduces the quantity distortion.One special characteristic of used products trade across borders is the involvement of governments on both sides of the border. The government measures include penalties imposed on aging durable goods and trade barriers. We find that legislation of penalizing used products on the domestic market can stimulate export, but it does not have an intended effect of stimulating new products produced at home. The channel structure worsens the problem.