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Automobile engine variants and price discrimination

Author

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  • Øyvind THOMASSEN

Abstract

Using a structural model of demand for automobile engine variants, this paper finds that there is second-degree price discrimination: markups increase with engine size. Still, average markups are lower than when models have just one engine. The paper develops the first empirical demand framework suitable for markets with variants. There is an unobserved product characteristic and a consumer-specific logit term for classes of products, but both are fixed across variants. Fixed effects control for unobservables. The literature’s assumption of orthogonality between unobserved and observed product characteristics is not needed.

Suggested Citation

  • Øyvind THOMASSEN, 2010. "Automobile engine variants and price discrimination," Working Papers Department of Economics ces10.15, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces10.15
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    File URL: https://lirias.kuleuven.be/bitstream/123456789/267471/1/DPS1015.pdf
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    More about this item

    Keywords

    second-degree price discrimination; automobiles; discrete-choice demand models;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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