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Demand and cost impacts of the 2 mm technology program in the US motor-vehicle market

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  • Ciro Biderman
  • Karen Polenske
  • Nicolas Rockler

Abstract

We assess the impact on demand and producers' costs of a new technology implemented in the US auto industry, the 2 mm program. This is a fascinating case partially because of the unique collaboration among public agencies and a consortium of manufacturers and universities. Using a type of hedonic price model for demand, we show that the new technology was responsible for a short-lived increase in demand for vehicles produced by US automakers at increased producers' costs. Firms that refused to participate in the consortium attained smaller net gains implementing the technology independently. Overall, our approach differs from that of previous analysts in that we (1) separate demand from supply, (2) employ a comprehensive vehicle database, spanning 1981-1998 data, including data on virtually all vehicle models sold in the USA, as well as data on plants' and producers' technology characteristics, and (3) rely on sales and production data rather than plant data. Also, we quantify the cost of not participating in the consortium.

Suggested Citation

  • Ciro Biderman & Karen Polenske & Nicolas Rockler, 2005. "Demand and cost impacts of the 2 mm technology program in the US motor-vehicle market," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(7), pages 637-655.
    • Handle: RePEc:taf:ecinnt:v:14:y:2005:i:7:p:637-655
    DOI: 10.1080/10438590500117537
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    References listed on IDEAS

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    1. Paul Isely & Gerald Simons, 2002. "Global Influences on U.S. Auto Innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(1), pages 25-34.
    2. Maurice Cassier & Dominique Foray, 2002. "Public Knowledge, Private Property and the Economics of High-tech Consortia," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(2), pages 123-132.
    3. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    4. Zvi Griliches, 1961. "Hedonic Price Indexes for Automobiles: An Econometric of Quality Change," NBER Chapters, in: The Price Statistics of the Federal Goverment, pages 173-196, National Bureau of Economic Research, Inc.
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