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The impact of fixed and variable cost on automobile demand: Evidence from Denmark

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  • Mulalic, Ismir
  • Rouwendal, Jan

Abstract

Many car characteristics, for instance cabin space and engine power, have a positive impact on fixed and variable costs. We extend the hedonic model, that considers only one type of cost, to the situation in which fixed as well as variable costs depend on the characteristics of the durable and derive an expression for the full willingness to pay for characteristics that takes into account the impact on fixed as well as variable costs. We apply the model to the demand for automobiles using rich Danish register data. Estimation reveals considerable heterogeneity and a non-negligible contribution of the variable costs in total willingness to pay. Next we show that under suitable assumptions a structural interpretation of our estimates is possible. We show that the willingness to pay per kilometer driven can be interpreted as a parameter of the utility function and study how it is related to household characteristics. Finally, we illustrate the model by computing how consumers change car quality in response to an increase in the fuel price.

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  • Mulalic, Ismir & Rouwendal, Jan, 2015. "The impact of fixed and variable cost on automobile demand: Evidence from Denmark," Economics of Transportation, Elsevier, vol. 4(4), pages 227-240.
    • Handle: RePEc:eee:ecotra:v:4:y:2015:i:4:p:227-240
    DOI: 10.1016/j.ecotra.2015.08.004
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    Cited by:

    1. Ostermeijer, Francis & Koster, Hans RA. & van Ommeren, Jos, 2019. "Residential parking costs and car ownership: Implications for parking policy and automated vehicles," Regional Science and Urban Economics, Elsevier, vol. 77(C), pages 276-288.
    2. Manuel Frondel & Colin Vance, 2018. "Drivers’ response to fuel taxes and efficiency standards: evidence from Germany," Transportation, Springer, vol. 45(3), pages 989-1001, May.
    3. Hybel, Jesper & Mulalic, Ismir, 2022. "Transportation and quality of life," Transportation Research Part A: Policy and Practice, Elsevier, vol. 157(C), pages 107-125.
    4. Mulalic, Ismir & Rouwendal, Jan, 2020. "Does improving public transport decrease car ownership? Evidence from a residential sorting model for the Copenhagen metropolitan area," Regional Science and Urban Economics, Elsevier, vol. 83(C).
    5. Cantos-Sánchez, Pedro & Gutiérrez-i-Puigarnau, Eva & Mulalic, Ismir, 2018. "The impact of scrappage programmes on the demand for new vehicles: Evidence from Spain," Research in Transportation Economics, Elsevier, vol. 70(C), pages 83-96.
    6. Hybel, Jesper & Mulalic, Ismir, 2021. "Transportation and Quality of Life: Evidence from Denmark," Working Papers 14-2021, Copenhagen Business School, Department of Economics.

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    More about this item

    Keywords

    Durable goods; Willingness to pay; Hedonic analysis; Nonparametrics; Car market;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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