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The Markets for Gasoline and Diesel Cars in Europe


  • Verboven, Frank


The existing tax policies towards gasoline and diesel cars in the European countries provide a unique opportunity to analyze intertemporal investment aspects in consumer behavior and quality-based price discrimination aspects in manufacturer pricing behavior. We develop an econometric framework of demand and pricing for gasoline and diesel cars. Consumers choose a gasoline or a diesel car based on their annual mileage. Manufacturers set gasoline and diesel car prices. Our empirical results show that consumer implicit interest rates are close to capital market rates, and considerably lower than the previous estimates obtained in the literature on consumer appliances. Furthermore, the results show that the relative pricing of gasoline and diesel cars is consistent with a monopoly model and inconsistent with competitive models of pricing. On average, about 70 to 85 percent of the price differentials between gasoline and diesel cars can be explained by markup differences. The implied tax incidence is especially based on fuel taxes and less so on annual car taxes.

Suggested Citation

  • Verboven, Frank, 1999. "The Markets for Gasoline and Diesel Cars in Europe," CEPR Discussion Papers 2069, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2069

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    Cited by:

    1. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    2. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    3. Qiu, Yueming & Colson, Gregory & Grebitus, Carola, 2014. "Risk preferences and purchase of energy-efficient technologies in the residential sector," Ecological Economics, Elsevier, vol. 107(C), pages 216-229.
    4. Qiu, Yueming & Colson, Gregory & Wetzstein, Michael E., 2017. "Risk preference and adverse selection for participation in time-of-use electricity pricing programs," Resource and Energy Economics, Elsevier, vol. 47(C), pages 126-142.

    More about this item


    Automobile Market; Implicit Interest Rates; Price Discrimination;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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