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Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

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Author Info

  • Ashley Langer

    (Department of Economics, University of California, Berkeley)

  • Nathan H. Miller

    (Economic Analysis Group, Antitrust Division, Department of Justice)

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    Abstract

    The 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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    File URL: http://www.justice.gov/atr/public/eag/240080.pdf
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    Bibliographic Info

    Paper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200811.

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    Length: 43 pages
    Date of creation: Dec 2008
    Date of revision:
    Handle: RePEc:doj:eagpap:200811

    Contact details of provider:
    Postal: Department of Justice Antitrust Division 450 Fifth Street NW Washington, DC 20530
    Email:
    Web page: http://www.justice.gov/atr/
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    Related research

    Keywords: Automobiles; Gasoline; Consumer Preference; Demand; Fuel Efficiency;

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    References

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    1. Dora Gicheva & Justine Hastings & Sofia Villas-Boas, 2007. "Revisiting the Income Effect: Gasoline Prices and Grocery Purchases," NBER Working Papers 13614, National Bureau of Economic Research, Inc.
    2. Carol Corrado & Wendy Dunn & Maria Otoo, 2006. "Incentives and prices for motor vehicles: what has been happening in recent years?," Finance and Economics Discussion Series 2006-09, Board of Governors of the Federal Reserve System (U.S.).
    3. Alquist, Ron & Kilian, Lutz, 2007. "What Do We Learn from the Price of Crude Oil Futures?," CEPR Discussion Papers 6548, C.E.P.R. Discussion Papers.
    4. Copeland, Adam & Hall, George J., 2005. "Prices, Production and Inventories over the Automotive Model Year," Working Papers 2, Yale University, Department of Economics.
    5. Shanjun Li & Christopher Timmins & Roger H. von Haefen, 2009. "How Do Gasoline Prices Affect Fleet Fuel Economy?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 113-37, August.
    6. Antonio M. Bento & Lawrence H. Goulder & Emeric Henry & Mark R. Jacobsen & Roger H. von Haefen, 2005. "Distributional and Efficiency Impacts of Gasoline Taxes: An Econometrically Based Multi-market Study," American Economic Review, American Economic Association, vol. 95(2), pages 282-287, May.
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    Cited by:
    1. Yizao Liu, 2010. "Gasoline Prices, Fuel Economy Efficiency And Automobile Replacement Dynamics," Working Papers 02, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.

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