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Home bias and market power: Evidence from the Chinese automobile industry

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  • Mian Dai
  • Qiang Gong
  • Shiyu Tan

Abstract

We investigate the interaction between home bias and market power by estimating an equilibrium oligopoly model using a dataset of new car registrations across Chinese provinces. We find a more elastic demand for home brands on average, despite a consistently stronger preference and cost advantages for local manufacturers. This limits the extent of home bias. Ignoring such effect would lead to an overestimation of home market share by 281% and overstate the cross region trade barriers. We also find that home bias is gender neutral and increases with age. Préférence nationale et pouvoir de marché : l'exemple de l'industrie automobile chinoise. Dans cet article, nous étudions l'interaction entre la « préférence nationale » et le pouvoir de marché en estimant un modèle d'équilibre oligopolistique s'appuyant sur un ensemble de données relatives aux nouvelles immatriculations automobiles dans les provinces chinoises. Nous constatons qu'en moyenne, la demande est plus élastique pour les marques locales en dépit d'une préférence toujours plus forte et d'avantages toujours plus accrus en matière de coûts pour les fabricants locaux. La portée de cette préférence nationale est donc limitée. Le fait d'ignorer ce paramètre d'élasticité reviendrait à surévaluer la part du marché intérieur de 281 % et à surestimer les barrières commerciales interrégionales. Nous constatons également que la préférence nationale concerne autant les femmes que les hommes et augmente avec l'âge.

Suggested Citation

  • Mian Dai & Qiang Gong & Shiyu Tan, 2021. "Home bias and market power: Evidence from the Chinese automobile industry," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 986-1017, November.
    • Handle: RePEc:wly:canjec:v:54:y:2021:i:3:p:986-1017
    DOI: 10.1111/caje.12521
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