Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy
AbstractThe relationship between gasoline prices and the demand for vehicle fuel efficiency is important for environmental policy but poorly understood in the academic literature. We provide empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. We derive a reduced-form regression equation from theoretical micro-foundations and estimate the equation with nearly 300,000 vehicle-week-region observations over the period 2003-2006. We find that vehicle prices generally decline in the gasoline price. The decline is larger for inefficient vehicles, and the prices of particularly efficient vehicles actually rise. Structural estimation that ignores these effects underestimates consumer preferences for fuel efficiency.
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Bibliographic InfoPaper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200811.
Length: 43 pages
Date of creation: Dec 2008
Date of revision:
Automobiles; Gasoline; Consumer Preference; Demand; Fuel Efficiency;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
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