Demand Surges and Intermediary Profits

We show that demand surges can lead to disintermediation through an analysis of the effects of the 2011 Japanese tsunami on the U.S. used car market. The tsunami devastated Japanese new car production, which led to an increase in demand for used cars. Wholesale and retail prices for used Japanese cars rose, but dealer margins declined by 2.3 percentage points. This decline is consistent with surges in demand leading to buyers and sellers bypassing intermediaries. The decline in dealer margins was most pronounced for popular cars trading in thick markets for which dealers were relatively more dispensable for trade and for younger used vehicles. Consistent with the adjustment costs literature, Japanese dealers, unlike their non-Japanese counterparts, were unable to exit markets for generally younger used Japanese models.