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The Bias Due to Omitting Quality When Estimating Automobile Demand

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  • Trandel, Gregory A

Abstract

The conclusions of policy-oriented market studies often hinge upon the size of an estimated demand elasticity. Few of the researchers who have estimated such elasticities have utilized a variable designed to measure the subjective concept of "quality." If quality both significantly affects the demand for a heterogeneous good and is positively correlated with price, omitting quality from a demand regression will lead to a downward bias in the estimated price elasticity. Using Levinsohn's (1988) model of the automobile market as a framework, this note shows that including quality variables can increase the model's estimated price elasticity by more than 80 percent. Copyright 1991 by MIT Press.

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  • Trandel, Gregory A, 1991. "The Bias Due to Omitting Quality When Estimating Automobile Demand," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 522-525, August.
    • Handle: RePEc:tpr:restat:v:73:y:1991:i:3:p:522-25
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    Cited by:

    1. Concetta Castiglione & Roberto Zanola, 2019. "The Demand and Supply for Popular Culture: Evidence from Italian Circuses," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(3), pages 349-367, October.
    2. Azad, Nader & Hassini, Elkafi, 2019. "Recovery strategies from major supply disruptions in single and multiple sourcing networks," European Journal of Operational Research, Elsevier, vol. 275(2), pages 481-501.
    3. 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.
    4. Claudio Agostini, 2010. "Efectos del Diferencial de Impuestos a las Gasolinas en la Demanda de Automóviles," ILADES-UAH Working Papers inv243, Universidad Alberto Hurtado/School of Economics and Business.
    5. Agostini, Claudio, 2010. "Differential fuel taxes and their effects on automobile demand," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    6. Requena-Silvente, Francisco & Walker, James, 2007. "Investigating sales and advertising rivalry in the UK multipurpose vehicle market (1995-2002)," Journal of Economics and Business, Elsevier, vol. 59(2), pages 163-180.
    7. C. Emre Alper & Ayse Mumcu, 2007. "Interaction between price, quality and country of origin when estimating automobile demand: the case of Turkey," Applied Economics, Taylor & Francis Journals, vol. 39(14), pages 1789-1796.

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