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Portfolio Considerations in Differentiated Product Purchases: An Application to the Japanese Automobile Market

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  • Wakamori, Naoki

Abstract

Consumers often purchase more than one differentiated product, assembling a portfolio, which might potentially affect substitution patterns of demand and, as a consequence, oligopolistic firms’ pricing strategies. To study such consumers’ portfolio considerations, this paper develops and estimates a structural model that allows for flexible complementarities/substitutabilities, using Japanese household-level data on automobile purchases. My estimates suggest that complementarities arise when households purchase a combination of one small automobile and one minivan as their portfolio. Simulation results suggest that, due to such portfolio considerations, a policy proposal of repealing the current tax subsidies for small eco-friendly automobiles would not necessarily sharply decrease the demand.

Suggested Citation

  • Wakamori, Naoki, 2015. "Portfolio Considerations in Differentiated Product Purchases: An Application to the Japanese Automobile Market," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 499, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:499
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    Cited by:

    1. James Archsmith & Kenneth T. Gillingham & Christopher R. Knittel & David S. Rapson, 2020. "Attribute substitution in household vehicle portfolios," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1162-1196, December.

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    More about this item

    Keywords

    Multiple Discrete Choices; Complementarities; Environmental Policy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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