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What Drives Home Market Advantage?

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  • Cosar, Kerem
  • Grieco, Paul L. E.
  • Li, Shengyu
  • Tintelnot, Felix

Abstract

In the automobile industry, as in many tradable goods markets, firms earn their highest market share within their domestic market. This home market advantage persists despite substantial integration of international markets during the past several decades. The goal of this paper is to quantify the supply- and demand-driven sources of the home market advantage and to understand their implications for international trade and investment. Building on the random coefficients demand model developed by Berry, Levinsohn, and Pakes (1995), we estimate demand and supply in the automobile industry for nine countries across three continents, allowing for unobserved taste and cost variation at the car model and market levels. While trade and foreign production costs as well as taste heterogeneity matter for market outcomes, we find that preference for domestic brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks.

Suggested Citation

  • Cosar, Kerem & Grieco, Paul L. E. & Li, Shengyu & Tintelnot, Felix, 2015. "What Drives Home Market Advantage?," CEPR Discussion Papers 10852, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10852
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    References listed on IDEAS

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    Cited by:

    1. Shirazi, Elham & Jadid, Shahram, 2017. "Cost reduction and peak shaving through domestic load shifting and DERs," Energy, Elsevier, vol. 124(C), pages 146-159.
    2. Lindström, Annika & Berg, Hanna & Nordfält, Jens & Roggeveen, Anne L. & Grewal, Dhruv, 2016. "Does the presence of a mannequin head change shopping behavior?," Journal of Business Research, Elsevier, vol. 69(2), pages 517-524.
    3. Panle Jia Barwick & Shengmao Cao & Shanjun Li, 2017. "Local Protectionism, Market Structure, and Social Welfare: China's Automobile Market," NBER Working Papers 23678, National Bureau of Economic Research, Inc.
    4. Shirazi, Yosef & Carr, Edward & Knapp, Lauren, 2015. "A cost-benefit analysis of alternatively fueled buses with special considerations for V2G technology," Energy Policy, Elsevier, vol. 87(C), pages 591-603.

    More about this item

    Keywords

    automobile industry; market segmentation; trade and foreign direct investment;

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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