I think that some goods may bring dis-utility to their owner, especially if they occupy scarce space. If one buys new bed, arm-chair, washing machine, etc, every extra day to keep an old one is costly. At the same time, these goods may still have some residual value (for example, only 50% of depreciation). So, others are willing to buy and even to carry them (if they are sold at let say, 10% of their value).

Space in rural area is less scarce than in cities, so old furniture is often kept there in some construction to store similar things.

I think that micro-economic literature still lacks this approach. It typically neglects transport costs, and does not focus on difference in individual valuations between buyer and seller.

Do you agree with me? Can you add more ideas on that issue?

Market surplus is there which also consider transport cost

Sir

Rural consumer of South East Asia has few feature such as : a lot of free time, never accept their weakness, always try to be millionaire in thinking, either be friend or enemy. So, it's tough to promote but if we have created one mediator. It will be easy

Dear @Anjay, I mean microeconomic theory, but not the psychology of rural Asian. As for your 1st answer, where from this surplus is created?

Dear Yuri sir

If exchange from urban to rural takes, then rural buyers may get benefit of price and urban will get benefit of space as you said. Utility will be maintained with exchange. But maitainance cost and resources should be cared

This is a question that will have a local context.

Transport costs are surely part of the situation. Another one is a form of information asimmetry (after all adverse selection was rirstly outlined by Akerlof with reference to the market of used cars) which causes differences in individual valuations between buyers and sellers.

Dear @Andrea, information asymmetry (market for lemons) can matter here, but to much less extent than in the case of cars. The ratio of transport costs to total costs is also higher for furniture than for cars. Car can be stored on the street, but furniture in a flat, where space is really scarce and expensive (especially in large cities with high land rent). This makes situation a bit different.

Dear @Anjay, you mentioned an interesting case when rural people buy second hand furniture in cities. Given income difference (higher in cities) and more costly space, even agents identical in preferences can value the same used good differently. However, we may have prohibitively high transport cost in this case, at least for cheap furniture. That is why I think that those markets are segmented. They are also fueled by people coming to a city for a fixed period (like university studies) and by temporary or seasonal workers, who really use minimal space, like 5-10 sq. m per person because they cannot afford to pay more for rent.

Dear @Emmanuel, it would be interesting to know what you mean by local context. I agree that those markets can differ across regions, but here I try to set up a general model with formulae, that should be similar.

Transport costs usually fall on the buyer rather than on the seller, selling his old furniture say at 10% of the original price (let it be π), a seller is indifferent between selling and not selling when the selling Price= π+ transportation cost. However, it is only when the buyer's offer is above this selling price will there be a market for 2nd hand goods.

However, an old car that goes obsolete within 1 year of purchase might serve no purpose to the one buying it 2nd hand.

Considering the case of furniture, there is a natural life to any furniture (or physical asset) that must be taken into consideration by the buyer.

Dear Samyak, you are thinking in correct direction. I want to stress here that there is no unique price for buyer and seller. And the reason is not in information, but in transport cost. Market is very differentiated, and there is no place where, let say, 100 buyers and sellers of the same differentiated commodity can meet and establish a unique market price. Furniture is differentiated in 2 dimensions: type and age.

As for used cars, you might be wrong. I know people who buy used cars let say for 5% of its initial price (like $1000), use it 1 year and throw away. Good for the beginners who can easily crash it, then it is not too costly.

@yuri One point I would like to add (correct me if wrong) is that the consideration of only a single variable(transportation costs) will be largely misleading because ignoring the buyer's utility perspective regarding the remnant value left in the furniture is also important. Therefore, there can be a market which evaluates and assures a buyer for the minimum quality(remnant value), however, this assurity might come at a price and will increase the overall transaction costs.

@Samyak, I think that the key inequality is U1-U2 > TC (1). Here U1 is the utility of a buyer, U2 of a seller, and TC is generalized transport cost (including manpower to carry the stuff and maybe even decompose into pieces before transporting).

Here we can derive several consequences. First, since the market is very differentiated (see my previous note), we are often far from perfect competition. There might be even a local monopoly or monopsony, if just only 1 guy with valuation lives sufficiently close, so that inequality (1) holds. Thus, we can have utility surplus.

Second, why a priori identical agents (as is often assumed in microeconomics) can have different valuations of the same object? This is because of externality for seller: the necessity to cover storage costs. Suppose that an agent buys a new bed of 2 sq.m and still has an old one, and his room is 20 sq. m and he pays for it $200 per month. Then 1 month storage will cost him 10%, or $20. If the old bed has valuation of $200, maybe he can wait 1 month to search for a buyer. But if it is only $20? Then he gives it for free, and a buyer will be a guy living close, so that transport cost is below $20.

Totally agree with what you said. But can there be a well settled market for such goods (be it a local market)?

Yuri Yegorov

Have you read Ian Steedman's book below?

Consumption Takes Time: Implications for Economic Theory (The Graz Schumpeter Lectures) Routledge, London and New York, 2001.

This is a very unique and interesting book. Steedman points that consumption of a consumer is not only limited by the budget constraint, but often by time constraint. For example, suppose you have two very profitable enterprises. You are very rich but at the same time very busy. Even if you want to go to a drama theater or want to read a voluminous roman, you have no time to spare and your desire does not emerge in the market as an effective demand.

In the same vein, there are several other major constraints that limit our demand to reveal. House space must be one of them. As Yuri Yegorov point it in his "first answer" to this question page, many people are in a difficulty to find the space to place furniture even if we want to buy it and we have enough money to buy it. Of course, if we are very rich, it is possible to buy a new large house and we will not have this inconvenience. But for many people like me, they are moderately rich to have got a small house, but have no more place to set new furniture. In such a case, we are obliged to throw away one of furniture or sell it at the second-hand market even at the price far less than the residual value.

The problem does not stop there. Similar problem occurs for much smaller items. As a researcher in the field of social science, I buy many books. My (or more exactly my family's) greatest problem is there is not place to put books. Almost all walls are already occupied by one or two book shelves. My wife complains always that our house is immersed by books and ask me to sell some of old books when I buy new books.

Yuri's question must be a problem of universal meaning which has been neglected in the standard microeconomics. Steedman’s book seems to show the first step on how to treat these problems. We may set a general theme: consumers' constraints other than budget constraints.