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What Drives Home Market Advantage?

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

Abstract

In the automobile industry, as in many tradable goods markets, firms usually earn their highest market share within their domestic market. The goal of this paper is to disentangle the supply- and demand-driven sources of the home market advantage. While trade costs, foreign production costs, and taste heterogeneity all matter for market outcomes, we find that a preference for home brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks. Furthermore, we also find that consumers favor domestically producing brands regardless of the historical brand origin.

Suggested Citation

  • A. Kerem Cosar & Paul L. E. Grieco & Shengyu Li & Felix Tintelnot, 2015. "What Drives Home Market Advantage?," NBER Working Papers 21583, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21583
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    3. Dorothee Hillrichs & Gonzague Vannoorenberghe, 2021. "Trade costs, home bias and the unequal gains from trade," LIDAM Discussion Papers IRES 2021005, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Vanessa Alviarez & Keith Head & Thierry Mayer, 2020. "Global giants and local stars: How changes in brand ownership affect competition," Sciences Po Economics Discussion Papers 2020-04, Sciences Po Departement of Economics.
    5. Peng, Cong, 2019. "Does e-commerce reduce traffic congestion? Evidence from Alibaba single day shopping event," LSE Research Online Documents on Economics 103411, London School of Economics and Political Science, LSE Library.
    6. 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.
    7. Panle Jia Barwick & Shengmao Cao & Shanjun Li, 2021. "Local Protectionism, Market Structure, and Social Welfare: China's Automobile Market," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 112-151, November.
    8. 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.
    9. de Jong, Gerben & Behrens, Christiaan & van Ommeren, Jos, 2019. "Airline loyalty (programs) across borders: A geographic discontinuity approach," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 251-272.
    10. Bee Yan Aw & Yi Lee & Hylke Vandenbussche, 2018. "Decomposing firm-product appeal:How important is consumer taste ?," Working Paper Research 337, National Bank of Belgium.
    11. Bee Yan Aw & Yi Lee & Hylke Vandenbussche, 2019. "The importance of consumer taste in trade," CESifo Working Paper Series 7580, CESifo.
    12. Shirazi, Elham & Jadid, Shahram, 2017. "Cost reduction and peak shaving through domestic load shifting and DERs," Energy, Elsevier, vol. 124(C), pages 146-159.
    13. Aw-Roberts, Bee Yan & Lee, Yi & Vandenbussche, Hylke, 2018. "Decomposing Firm-Product Appeal: How important is Consumer Taste?," CEPR Discussion Papers 12707, C.E.P.R. Discussion Papers.
    14. Aw-Roberts, Bee Yan & Lee, Yi & Vandenbussche, Hylke, 2019. "The Importance of Consumer Taste in Trade," CEPR Discussion Papers 13614, C.E.P.R. Discussion Papers.
    15. Gerben de Jong & Christiaan Behrens & Hester van Herk & Erik (E.T.) Verhoef, 2018. "Airfares with codeshares: (why) are consumers willing to pay more for products of foreign firms with a domestic partner?," Tinbergen Institute Discussion Papers 18-077/VIII, Tinbergen Institute, revised 28 Feb 2021.
    16. Amit Gandhi & Jean-François Houde, 2019. "Measuring Substitution Patterns in Differentiated-Products Industries," NBER Working Papers 26375, National Bureau of Economic Research, Inc.
    17. Wang, Zi, 2021. "Headquarters gravity: How multinationals shape international trade," Journal of International Economics, Elsevier, vol. 131(C).
    18. Zhang, Penglong, 2020. "Home-biased gravity: The role of migrant tastes in international trade," World Development, Elsevier, vol. 129(C).

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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