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Automakers' Short-Run Responses to Changing Gasoline Prices

Author

Listed:
  • Ashley Langer

    (University of Arizona)

  • Nathan H. Miller

    (U.S. Department of Justice)

Abstract

We provide empirical evidence that automobile manufacturers use cash incentives to offset how gasoline price fluctuations affect the expected fuel expenses of automobile buyers. Regressions based on a database of incentives over 2003 to 2006 suggest that on average, manufacturers offset 40% of the change in relative fuel costs between vehicles due to gasoline price fluctuations. The results highlight that carbon taxes and emissions trading programs likely would generate substantial substitution within vehicle classes, and studies that ignore manufacturer discounting likely underestimate consumer demand for fuel economy. The results also have implications for the optimal design of feebate programs. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Ashley Langer & Nathan H. Miller, 2013. "Automakers' Short-Run Responses to Changing Gasoline Prices," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1198-1211, October.
    • Handle: RePEc:tpr:restat:v:95:y:2013:i:4:p:1198-1211
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    More about this item

    Keywords

    automobile prices; gasoline prices; environmental policy;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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