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Analysis of product efficiency in the Korean automobile market from a consumer’s perspective

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  • Inha Oh

    ()

  • Jeong-Dong Lee
  • Seogwon Hwang
  • Almas Heshmati

Abstract

A product is called technically inefficient when it has higher price and/or lower quality than others. Technical inefficiency of product has been conceptualized since Lancaster (1966), and empirically measured by many researchers, for example, Fernandez-Castro and Smith (2002) and Lee et al. (2005) among others. If we know further the information about structure of utility function, allocative inefficiency can also be measured. Even though a product is technically efficient with highest quality together with lowest price, it could not be chosen in the market, if it cannot match the preference structure of consumers, i.e. it is allocatively inefficient. This study poses a conceptual and methodological framework to measure technical and allocative efficiency at the product level considering consumer’s choice, which comprises the overall efficiency. Empirically we combine Data Envelopment Analysis (DEA) and discrete choice model to measure the level of inefficiencies. The suggested framework is applied to the Korean automobile market. The relationship between the level of efficiency and market performance in terms of market share is discussed.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s00181-009-0258-x
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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 38 (2010)
Issue (Month): 1 (February)
Pages: 119-137

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Handle: RePEc:spr:empeco:v:38:y:2010:i:1:p:119-137

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Related research

Keywords: DEA; Product efficiency; Consumers utility; Automobile market; South Korea; C14; C25; D13; D61; L92;

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References

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  1. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  2. Ley, Eduardo & Steel, Mark F J, 1996. "On the Estimation of Demand Systems through Consumption Efficiency," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 539-43, August.
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  4. Angel S. Fernandez-Castro & Peter C. Smith, 2002. "Lancaster's characteristics approach revisited: product selection using non-parametric methods," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 83-91.
  5. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, January.
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  7. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
  8. Ulrich Kaiser, 2002. "The Effects of Website Provision on the Demand for German Women's Magazines," NBER Working Papers 8806, National Bureau of Economic Research, Inc.
  9. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  10. Wojcik, Charlotte, 2001. "Learning by Consumers in the Demand for Japanese Cars," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 94-107, February.
  11. De Borger, Bruno & Kerstens, Kristiaan, 1996. "Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches," Regional Science and Urban Economics, Elsevier, vol. 26(2), pages 145-170, April.
  12. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
  13. Lee, Jeongdong & Repkine, Alexandre & Hwang, Seogwon & Kim, Taiyoo, 2004. "Estimating Consumers’ Willingness to Pay for the Individual Quality Attributes with DEA," MPRA Paper 7848, University Library of Munich, Germany.
  14. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
  15. M. Halme & T. Joro & P. Korhonen & S. Salo & J. Wallenius, 1998. "Value Efficiency Analysis for Incorporating Preference Information in Data Envelopment Analysis," Working Papers ir98054, International Institute for Applied Systems Analysis.
  16. Pekka Korhonen & Mikko Syrjänen, 2005. "On the Interpretation of Value Efficiency," Journal of Productivity Analysis, Springer, vol. 24(2), pages 197-201, October.
  17. Wojcik, Charlotte, 2000. "Alternative models of demand for automobiles," Economics Letters, Elsevier, vol. 68(2), pages 113-118, August.
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Cited by:
  1. Uwe Cantner & Jens J. Krüger & René Söllner, 2012. "Product quality, product price, and share dynamics in the German compact car market," Industrial and Corporate Change, Oxford University Press, vol. 21(5), pages 1085-1115, October.
  2. Voltes-Dorta, Augusto & Perdiguero, Jordi & Jiménez, Juan Luis, 2013. "Are car manufacturers on the way to reduce CO2 emissions?: A DEA approach," Energy Economics, Elsevier, vol. 38(C), pages 77-86.

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