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Demand estimation for the Iranian automobile industry

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  • Rahmati, Mohammad Hossein
  • Yousefi, Seyed Reza

Abstract

The main contribution of this paper is a simple theoretical framework and empirical estimations explaining the behavior of the manufacturers. The paper focuses on the frequently used methods of demand estimation for discrete choice models to analyze the Iranian automobile market. It shows how both major companies in Iran choose to produce lower quality products and why they still collusively charge high markups. Empirical estimations are based on Berry, Levinsohn, and Pakes (1995) to predict marginal costs and markups. Estimation results also support the hypothesis that manufacturers are charging high markups. In addition, the counterfactual analysis carried out supports the view that both duopolist firms prefer to operate at lower quality rather than at higher quality production levels. They also collusively price their products. Furthermore, analyses are performed using the Multinomial Logit methodology to better understand the Iranian automobile market. Tastes of people with different genders and ages for some specific cars are explained, and the effects of population changes on auto demand are predicted.

Suggested Citation

  • Rahmati, Mohammad Hossein & Yousefi, Seyed Reza, 2013. "Demand estimation for the Iranian automobile industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 277-284.
    • Handle: RePEc:eee:quaeco:v:53:y:2013:i:3:p:277-284
    DOI: 10.1016/j.qref.2011.03.001
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    References listed on IDEAS

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    1. Lambertini, Luca, 1996. "Choosing Roles in a Duopoly for Endogenously Differentiated Products," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 205-224, December.
    2. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    3. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    4. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    5. Peter M. Guadagni & John D. C. Little, 1983. "A Logit Model of Brand Choice Calibrated on Scanner Data," Marketing Science, INFORMS, vol. 2(3), pages 203-238.
    6. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
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    Cited by:

    1. Mohammad H. Rahmati & Asal Pilehvari, 2019. "The productivity trend in Iran Evidence from manufacturing firms," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 395-408, February.

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    More about this item

    Keywords

    Demand estimation; Multinomial Logit; Discrete choice;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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