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Audi vs. BMW – On the Physical Heterogeneity of German Luxury Cars

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  • Vistesen, Claus

Abstract

This paper uses Logit and Probit regressions to test for and quantify the physical heterogeneity between German luxury cars. Using a matched sample database, the binary response variable consisting of Audis and BMWs is fitted to a matrix of physical characteristics such as power, torque, fuel consumption, engine displacement etc. The results indicate that having a forced induction engine (e.g. turbo) is associated with a 51% lower probability of observing a BMW and that increasing fuel consumption by 1 liter per 100km lowers the probability of observing a BMW with 61%. The results are discussed in relation to the idea that consumers may not differentiate across luxury products on the basis of physical characteristics and how this may introduce a bias with respect to predicting demand in the context of available market data.

Suggested Citation

  • Vistesen, Claus, 2009. "Audi vs. BMW – On the Physical Heterogeneity of German Luxury Cars," MPRA Paper 19516, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:19516
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    References listed on IDEAS

    as
    1. Steven Berry & Ariel Pakes, 2007. "The Pure Characteristics Demand Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1193-1225, November.
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    More about this item

    Keywords

    Audi; BMW; automobile industry; pure characteristics demand models; luxury cars;
    All these keywords.

    JEL classification:

    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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