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The Price Evolution in China's Automobile Market

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  • Shanjun Li
  • Junji Xiao
  • Yimin Liu

Abstract

The automobile market in China has seen unprecedented expansion during the past decade with rapid model turnover and dramatic price decline. This paper aims to document the evolution of price and investigate the sources of price decline, paying attention to both market structure and cost factors. We estimate a market equilibrium model with differentiated multiproduct oligopoly using market‐level sales data in China together with information from household surveys. Our counterfactual simulations show that (quality‐adjusted) vehicle prices have dropped by 33% from 2004 to 2009. The decrease in markup from intensified competition accounts for about one third of this change and the rest comes from cost reductions through learning by doing and other channels. In addition, our simulations show that the price decline would have been larger had it not been for the growth of household income during this period.

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  • Shanjun Li & Junji Xiao & Yimin Liu, 2015. "The Price Evolution in China's Automobile Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 786-810, October.
    • Handle: RePEc:bla:jemstr:v:24:y:2015:i:4:p:786-810
    DOI: 10.1111/jems.12116
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    References listed on IDEAS

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    2. Arcila, Andres & Chen, Tao & Lu, Xiaolan, 2018. "The effectiveness of consumption tax on the reduction of car pollution in China," CLEF Working Paper Series 15, Canadian Labour Economics Forum (CLEF), University of Waterloo.
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    7. Emre Ünal, 2021. "Industrial growth models by input–output analysis and an institutional approach to the automotive industry in China and Turkey," Evolutionary and Institutional Economics Review, Springer, vol. 18(1), pages 175-203, April.
    8. Sun, Qi & Xu, Lin & Yin, Hua, 2016. "Energy pricing reform and energy efficiency in China: Evidence from the automobile market," Resource and Energy Economics, Elsevier, vol. 44(C), pages 39-51.
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    11. Brandt, Loren & Thun, Eric, 2016. "Constructing a Ladder for Growth: Policy, Markets, and Industrial Upgrading in China," World Development, Elsevier, vol. 80(C), pages 78-95.
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