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The Determinants of Equity Transmission Between the New and Used Car Markets – A Hedonic Analysis

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  • Kihm, Alex
  • Vance, Colin

Abstract

Drawing on a data set containing 371,082 observations on new and used cars from 2008, this study employs a hedonic model to estimate the determinants of prices in the primary and secondary car markets in Germany. We are specifically interested in identifying those vehicle attributes that are responsible for retaining the car's value in the used car market. Beyond parameterizing the influence of technical features and brand name on the retail price, our model simultaneously generates a corresponding set of parameter estimates for the used car price, thereby allowing us to formally compare their magnitudes across the two markets. This comparison reveals that fuel consumption, in particular, is an important determinant of the price, one whose impact is higher in magnitude in the used car market than in the new car market. Large heterogeneity in how cars hold their investment value is also seen to depend on body type and brand/model name.

Suggested Citation

  • Kihm, Alex & Vance, Colin, 2014. "The Determinants of Equity Transmission Between the New and Used Car Markets – A Hedonic Analysis," Ruhr Economic Papers 521, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:521
    DOI: 10.4419/86788596
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    References listed on IDEAS

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    1. Cowling, Keith & Cubbin, John, 1972. "Hedonic Price Indexes for United Kingdom Cars," Economic Journal, Royal Economic Society, vol. 82(327), pages 963-978, September.
    2. G Baltas & C Saridakis, 2010. "Measuring brand equity in the car market: a hedonic price analysis," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(2), pages 284-293, February.
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    4. Frondel, Manuel & Schmidt, Christoph M. & Vance, Colin, 2011. "A regression on climate policy: The European Commission’s legislation to reduce CO2 emissions from automobiles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1043-1051.
    5. Ye Feng & Don Fullerton & Li Gan, 2013. "Vehicle choices, miles driven, and pollution policies," Journal of Regulatory Economics, Springer, vol. 44(1), pages 4-29, August.
    6. Murray, Jonathan & Sarantis, Nicholas, 1999. "Quality, user cost, forward-looking behavior, and the demand for cars in the UK," Journal of Economics and Business, Elsevier, vol. 51(3), pages 237-258, May.
    7. 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.
    8. Henrik Andersson, 2005. "The Value of Safety as Revealed in the Swedish Car Market: An Application of the Hedonic Pricing Approach," Journal of Risk and Uncertainty, Springer, vol. 30(3), pages 211-239, May.
    9. Frank C. Wykoff, 1973. "A User Cost Approach to New Automobile Purchases," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 377-390.
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    Cited by:

    1. Giuliano Rolle, 2022. "Between and within vehicle models hedonic analyses of environmental attributes: the case of the Italian used-car market," SEEDS Working Papers 0822, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Aug 2022.
    2. Ramírez Muñoz de Toro, Gonzalo R. & Uriarte, Juan I. & Delbianco, Fernando & Larrosa, Juan M.C., 2017. "Un modelo hedónico de precios en línea de automóviles usados en Argentina || A Hedonic Model of Online Prices of Used Cars in Argentina," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 24(1), pages 25-53, Diciembre.
    3. Yuya Shibuya & Hideyuki Tanaka, 2019. "How does a large-scale disaster impact on the used-car market? A case study of the Great East Japan Earthquake and Tsunami," International Journal of Economic Policy Studies, Springer, vol. 13(1), pages 89-117, January.
    4. Enci Liu & Jie Li & Anni Zheng & Haoran Liu & Tao Jiang, 2022. "Research on the Prediction Model of the Used Car Price in View of the PSO-GRA-BP Neural Network," Sustainability, MDPI, vol. 14(15), pages 1-19, July.

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    More about this item

    Keywords

    retail prices; used car prices; hedonic model; Germany;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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