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Automobile Prices and Quality: Did the Gasoline Price Increase Change Consumer Tastes in the U.S.?

Listed author(s):
  • Makoto Ohta
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    Did the 1973 and 1979 gasoline price rises change consumer views about the relative quality of different cars? This question is investigated by testing the null hypothesis that imputed characteristic prices have remained constant over time. A hedonic model that takes gasoline costs into account is developed and some of its theoretical implications are outlined.The statistical methods required for its estimation and for the testing of the particular null hypothesis are discussed and then used to analyze the prices of U.S. passenger cars in the used market during 1970-1981. If one does not take gasoline costs into account in such computations one must conclude that consumers changed their relative evaluations of car qualities significantly in both periods: October 1973 to April 1974 and April to October1979. However, when gasoline efficiency terms are included in the model,the estimated relative qualities are much more stable over time, with no period showing significant changes, and it is possible to maintain the "constancy of tastes" assumption. Since the main model adjusts not only for the effect of gasoline price increases but also for the effects of changes in other prices and income, we develop two alternative approaches which adjust solely for the increase in gasoline prices. Applying these to the 1979 period we find that a significant fraction of the coefficient change that did occur during this period can be attributed to the gasoline price increase alone,indicating that this is indeed a major component of what happened.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1211.

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    Date of creation: Oct 1983
    Publication status: published as Ohta, Makoto and Zvi Griliches. "Automobile Prices and Quality: Did the Gasoline Price Increases Change Consumer Tastes in the U.S.?" Journal of Business & Economic Statistics, Vol. 4, No. 2, (April 1986), pp. 187-198.
    Handle: RePEc:nbr:nberwo:1211
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    1. Makoto Ohta & Zvi Griliches, 1976. "Automobile Prices Revisited: Extensions of the Hedonic Hypothesis," NBER Chapters,in: Household Production and Consumption, pages 325-398 National Bureau of Economic Research, Inc.
    2. Daly, George G & Mayor, Thomas H, 1983. "Reason and Rationality during Energy Crises," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 168-181, February.
    3. Muellbauer, John, 1974. "Household Production Theory, Quality, and the "Hedonic Technique."," American Economic Review, American Economic Association, vol. 64(6), pages 977-994, December.
    4. Lucas, Robert E B, 1975. "Hedonic Price Functions," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 157-178, June.
    5. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, November.
    6. Berndt, Ernst R., 1983. "Quality adjustment in empirical demand analysis," Working papers 1397-83., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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