Product Quality, Product Price, and Share Dynamics in the German Compact Car Market

Posted by D. Daniel Sokol

Uwe Cantner (School of Economics and Business Administration, Friedrich-Schiller-University Jena), Jens J. Krüger (Technical University Darmstadt, Fachbereich Rechts- und Wirtschaftswissenschaften), and Rene Söllner (Friedrich Schiller University Jena, DFG-RTG "The Economics of Innovative Change") discuss Product Quality, Product Price, and Share Dynamics in the German Compact Car Market.

ABSTRACT: The present paper examines one of the central elements of evolutionary thinking - competition formalized by the replicator dynamics mechanism. Using data on product characteristics of automobiles sold on the German domestic market over the period 2001-2006, we construct a competitiveness or fitness variable for each car model applying non-parametric efficiency measurement techniques. The basic question we intend to answer is whether cars providing a higher quality-price ratio for consumers tend to increase their market share compared to variants with lower quality-price ratios. The relationship between a car models' fitness and its market performance is empirically tested in a regression framework. The results show that the principle of `growth of the fitter' is working as suggested by evolutionary theory. In particular, we find that car models with considerably lower fitness than the market average lose, whereas models ! with above-average fitness gain additional market shares.