Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, December 8, 2008

Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

Posted by D. Daniel Sokol

Ashley Langer of Berkeley - Department of Economics and Nathan Miller of DOJ Antitrust have a new paper on Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy.

ABSTRACT: The relationship between gasoline prices and the demand for vehicle fuel e±ciency is im- portant for environmental policy but poorly understood in the academic literature. We provide empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. We derive a reduced-form regression equation from theoretical micro-foundations and estimate the equation with nearly 300,000 vehicle-week-region observations over the period 2003- 2006. We ¯nd that vehicle prices generally decline in the gasoline price. The decline is larger for ine±cient vehicles, and the prices of particularly e±cient vehicles actually rise. Structural estimation that ignores these e®ects underestimates consumer preferences for fuel e±ciency.

http://lawprofessors.typepad.com/antitrustprof_blog/2008/12/automobile-pric.html

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