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Analysis of product efficiency in the Korean automobile market from a consumer’s perspective

Author

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  • Inha Oh

  • Jeong-Dong Lee
  • Seogwon Hwang
  • Almas Heshmati

Abstract

A product is called technically inefficient when it has higher price and/or lower quality than others. Technical inefficiency of product has been conceptualized since Lancaster (1966), and empirically measured by many researchers, for example, Fernandez-Castro and Smith (2002) and Lee et al. (2005) among others. If we know further the information about structure of utility function, allocative inefficiency can also be measured. Even though a product is technically efficient with highest quality together with lowest price, it could not be chosen in the market, if it cannot match the preference structure of consumers, i.e. it is allocatively inefficient. This study poses a conceptual and methodological framework to measure technical and allocative efficiency at the product level considering consumer’s choice, which comprises the overall efficiency. Empirically we combine Data Envelopment Analysis (DEA) and discrete choice model to measure the level of inefficiencies. The suggested framework is applied to the Korean automobile market. The relationship between the level of efficiency and market performance in terms of market share is discussed.
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Suggested Citation

  • Inha Oh & Jeong-Dong Lee & Seogwon Hwang & Almas Heshmati, 2010. "Analysis of product efficiency in the Korean automobile market from a consumer’s perspective," Empirical Economics, Springer, vol. 38(1), pages 119-137, February.
    • Handle: RePEc:spr:empeco:v:38:y:2010:i:1:p:119-137
    DOI: 10.1007/s00181-009-0258-x
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    1. Hampf, Benjamin & Krüger, Jens, 2010. "Technical Efficiency of Automobiles – A Nonparametric Approach Incorporating Carbon Dioxide Emissions," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 43177, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Ljubica Nedelkoska, 2010. "Occupations at risk: The task content and job stability," Jena Economics Research Papers 2010-024, Friedrich-Schiller-University Jena.
    3. Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2011. "Public Sector Funding and Debt Management: A Case for GDP-Linked Sukuk," MPRA Paper 46008, University Library of Munich, Germany, revised 2011.
    4. Meng, Bing & Xue, Kunkun & Han, Miaoyi, 2022. "Digitalization, natural resources rents, and financial market risk: Evidence from G7 countries," Resources Policy, Elsevier, vol. 79(C).
    5. Richter, Magnus, 2017. "Time and quality efficiency of Scotch single malt whisky production: An empirical two-model DEA approach," Ilmenauer Schriften zur Betriebswirtschaftslehre, Technische Universität Ilmenau, Institut für Betriebswirtschaftslehre, volume 2, number 22017.
    6. Hampf, Benjamin & Krüger, Jens J., 2010. "Technical efficiency of automobiles: A nonparametric approach incorporating carbon dioxide emissions," Darmstadt Discussion Papers in Economics 198, Darmstadt University of Technology, Department of Law and Economics.
    7. Gary Ferrier & Julie Trivitt, 2013. "Incorporating quality into the measurement of hospital efficiency: a double DEA approach," Journal of Productivity Analysis, Springer, vol. 40(3), pages 337-355, December.
    8. Agovino, Massimiliano & Ferraro, Aniello & Garofalo, Antonio, 2023. "Are green cars an optimal and efficient choice for motorists? Evidence from Italy," Transport Policy, Elsevier, vol. 141(C), pages 140-151.
    9. González, Eduardo & Cárcaba, Ana & Ventura, Juan, 2015. "How car dealers adjust prices to reach the product efficiency frontier in the Spanish automobile market," Omega, Elsevier, vol. 51(C), pages 38-48.
    10. Rasti-Barzoki, Morteza & Moon, Ilkyeong, 2020. "A game theoretic approach for car pricing and its energy efficiency level versus governmental sustainability goals by considering rebound effect: A case study of South Korea," Applied Energy, Elsevier, vol. 271(C).
    11. Voltes-Dorta, Augusto & Perdiguero, Jordi & Jiménez, Juan Luis, 2013. "Are car manufacturers on the way to reduce CO2 emissions?: A DEA approach," Energy Economics, Elsevier, vol. 38(C), pages 77-86.

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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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