Investment when New Capital is Hard to Find

We examine how a fixed capital supply shortage affects firm investment. Using equipmenttransaction-level data, we find pandemic-driven production disruptions significantlyaltered capital reallocation patterns across firms. A surge in used capital trading activitysoftened the investment decline, as firms acquired used capital from distant and dissimilarcounterparts. Younger firms were disproportionately affected even though they rarelypurchase new capital: while in normal times older firms sell their capital to younger firms,following a supply shortage, older firms compete for used capital, pricing out youngerfirms. Our evidence highlights the crucial role of secondary markets and distributiveexternalities for corporate investment.