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Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars


  • Frank Verboven


The existing tax policies toward gasoline and diesel cars in European countries provide a unique opportunity to analyze quality-based price discrimination and the implied tax incidence. In my econometric framework, consumers choose the type of engine based on their annual mileage; prices are set by the manufacturers. The relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination, effectively segmenting low-mileage from high-mileage consumers. On average, about 75% to 90% of the price differentials between gasoline and diesel cars can be explained by markup differences. I draw implications for the effectiveness and the revenue effects of tax policy.

Suggested Citation

  • Frank Verboven, 2002. "Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 275-297, Summer.
  • Handle: RePEc:rje:randje:v:33:y:2002:i:summer:p:275-297

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