Automobile replacement: a dynamic structural approach
AbstractThis paper specifies and estimates a structural dynamic model of consumer demand for new and used durable goods. Its primary contribution is to provide an explicit estimation procedure for transaction costs, which are crucial to capturing the dynamic nature of consumer decisions. In particular, transaction costs play a key role in determining consumer replacement behavior in both primary and secondary markets for durable goods. The unique data set used in this paper has been collected by the Italian Motor Registry and covers the period from 1994 to 2004. It includes information about sales dates for individual cars over time as well as the initial stock of cars in the sample period. Identification of transaction costs is achieved from the variation in the share of consumers choosing to hold a given car type each period, and from the share of consumers choosing to purchase the same car type that period. Specifically, I estimate a random coefficients discrete choice model that incorporates a dynamic optimal stopping problem in the spirit of Rust (1987). I apply this model to evaluate the impact of scrappage subsidies on the Italian automobile market in 1997 and 1998.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 21780.
Length: 39 pages
Date of creation: 01 Oct 2008
Date of revision:
Other versions of this item:
- Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, 06.
- Pasquale Schiraldi, 2010. "Automobile Replacement: A DynamicStructural Approach," STICERD - Economics of Industry Papers 49, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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- Jerome Adda & Russell Cooper, 2000.
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- Adda, Jérôme & Cooper, Russell W., 1997. "Balladurette and jupette: a discrete analysis of scrapping subsidies," CEPREMAP Working Papers (Couverture Orange) 9711, CEPREMAP.
- Jerome Adda & Russell Cooper, 1997. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," NBER Working Papers 6048, National Bureau of Economic Research, Inc.
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"Dynamics of Consumer Demand for New Durable Goods,"
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- Hideo Konishi & Michael Sandfort, 2000. "Existence of Stationary Equilibrium in the Markets for New and Used Durable Goods," Boston College Working Papers in Economics 450, Boston College Department of Economics.
- Konishi, H. & Sandfort, M.T., 2000. "Existence of Stationary Equilibrium in the Markets for New and Used Durable Goods," Papers 00-8, U.S. Department of Justice - Antitrust Division.
- Brownstone, David & Train, Kenneth, 1999.
"Forecasting new product penetration with flexible substitution patterns,"
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qt3tb6j874, University of California Transportation Center.
- Brownstone, David & Train, Kenneth, 1998. "Forecasting new product penetration with flexible substitution patterns," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 109-129, November.
- Brownstone, David & Train, Kenneth, 1999. "Forecasting new product penetration with flexible substitution patterns," University of California Transportation Center, Working Papers qt1j6814b3, University of California Transportation Center.
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Brett R. Gordon, 2009. "A Dynamic Model of Consumer Replacement Cycles in the PC Processor Industry," Marketing Science, INFORMS, vol. 28(5), pages 846-867, 09-10.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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