I am very interested in secondary-market-related research topics. Especially, from the micro-level, e.g., starting from the utility function of consumers. I want to understand how to model rational consumers' behavior (i.e., initial investment decision, and reselling decisions in the subsequent periods) in the durable goods market (e.g., real estate, car, etc.).

I've been thinking about it myself for some time to come up with a multi-period model with infinitely many consumers each deliberating whether and when to make a purchase of a durable good (and when to sell it) that can potentially generate rent for the owner. This seems very complicated. But at the same time, I feel that this problem is so fundamental, e.g., the housing and 2nd-hand car market have been there for a long time. So I feel that some great economists must have already built a model for that. I did search for some keywords like "market microstructure" or "real estate market multi-period model", etc. I couldn't find the right paper.

I hope someone could recommend some papers on this topic for me, or suggest some author names, keywords. I appreciate it a lot.

  • $\begingroup$ Just from common sense I would expect that markets for common every day items with lots of transactions can be modelled a lot better with a rational consumer assumptions that markets for something like real estate where most people only do one or very few transaction in their entire life time and consequently have a lot less knowledge and experience of the market. $\endgroup$
    – quarague
    Feb 10, 2022 at 14:34

3 Answers 3


Important work in the car market has been done within the BLP-framework (Berry,Levinsohn,Pakes). The modeling techniques used rely heavily on Mixed Logit Models. Without any prior knowledge of this type of modelling you would probably wanna look for Kenneth Trains homepage and read through his book on discrete choice methods.

The BLP framework is itself well explained in an article by Nevo you should look at "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand" (on a side note these techniques are usually covered in courses on empirical Industrial Organization coursed so perhaps look for slides and Matlab code from these courses)

For Housing market applications of discrete choice models look for articles by Patrick Bayer and company for example

A Unified Framework for Measuring Preferences for Schools and Neighborhoods Author(s): Patrick Bayer, Fernando Ferreira and Robert McMillan Source: Journal of Political Economy, Vol. 115, No. 4 (August 2007), pp. 588-638

The BLP framework does not, however, include dynamic optimization. The groundbreaking Frisch Medal awarded paper is the Econometrica paper

(1987) "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher"

paving the way for maximum likelihood estimation of dynamic discrete choice problems (today other estimation techniques have been developed but the approach set forth by John Rust is still very relevant and applied). Perhaps more accessible is the description of the Nested Fixed Point algorithm used when estimating these models.

Bayer and coauthors (relying on the work of Rust) years later make

A DYNAMIC MODEL OF DEMAND FOR HOUSES AND NEIGHBORHOODS Author(s): Patrick Bayer, Robert McMillan, Alvin Murphy and Christopher Timmins Source: Econometrica, May 2016, Vol. 84, No. 3 (May 2016), pp. 893-942

And for an application to the car and used car market Equilibrium Trade in Automobiles by Kenneth Gillingham, Fedor Iskhakov, Anders Munk-Nielsen, John Rust, Bertel Schjerning there is a 2021 paper here


It's not a market you're asking about, but my first thought was Hendel and Nevo (2006) and their study of soda pop purchases. You might search in Google Scholar for papers that cite this paper.


Daniel Spulbur has a very nice and accessible 1996 article in the Journal of Economic Perspectives (link) that would be a good and easy starting place. The article covers microstructure in product markets and financial markets.

For a more thorough treatment specifically related to financial markets, you may be interested in Hans Stoll's 2003 chapter on market microstructure in the Handbook of the Economics of Finance (link).


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