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Automobile Prices in Market Equilibrium: Part I and II

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  • Steven Berry
  • James Levinsohn
  • Ariel Pakes

Abstract

This paper develops new techniques for empirically analyzing demand and supply in differentiated products markets and then applies these techniques to analyze equilibrium in the U.S. automobile industry. Our primary goal is to present a framework which enables one to obtain estimates of demand and cost parameters for a broad class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. When we apply the techniques developed here to the U.S. automobile market. we obtain cost and demand parameters for (essentially) all models marketed over a twenty year period.

Suggested Citation

  • Steven Berry & James Levinsohn & Ariel Pakes, 1993. "Automobile Prices in Market Equilibrium: Part I and II," NBER Working Papers 4264, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4264
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    References listed on IDEAS

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    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Newey, Whitney K, 1990. "Efficient Instrumental Variables Estimation of Nonlinear Models," Econometrica, Econometric Society, vol. 58(4), pages 809-837, July.
    4. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-1057, September.
    5. Simon P. Anderson & André De Palma & Jacques-François Thisse, 1989. "Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 21-35.
    6. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    7. Timothy F. Bresnahan & Dennis A. Yao, 1985. "The Nonpecuniary Costs of Automobile Emissions Standards," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 437-455, Winter,.
    8. Bresnahan, Timothy F., 1981. "Departures from marginal-cost pricing in the American automobile industry : Estimates for 1977-1978," Journal of Econometrics, Elsevier, vol. 17(2), pages 201-227, November.
    9. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    10. Michael Sattinger, 1984. "Value of an Additional Firm in Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 321-332.
    11. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    12. Manski, Charles F., 1983. "Analysis of equilibrium automobile holdings in Israel with aggregate discrete choice models," Transportation Research Part B: Methodological, Elsevier, vol. 17(5), pages 373-389, October.
    13. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-479, April.
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    1. repec:eee:joreco:v:15:y:2008:i:4:p:250-265 is not listed on IDEAS
    2. Timothy F. Bresnahan & Shane Greenstein, 1994. "The Competitive Crash in Large-Scale Commercial Computing," NBER Working Papers 4901, National Bureau of Economic Research, Inc.
    3. Douglas Nelson, 1996. "The Political Economy of U.S. Automobile Protection," NBER Chapters,in: The Political Economy of American Trade Policy, pages 133-196 National Bureau of Economic Research, Inc.
    4. Eduardo P. S. Fiuza, 2015. "Automobile Demand and Supply in Brazil: Effects of Tax Rebates and Trade Liberalization on Price-marginal Cost Markups in the 1990s," Discussion Papers 0119, Instituto de Pesquisa Econômica Aplicada - IPEA.
    5. Sergei Koulayev, 2008. "Estimating search with learning," Working Papers 08-29, NET Institute, revised Oct 2008.

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