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Price discrimination and tax incidence: Evidence from gasoline and diesel cars

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  • VERBOVEN, Frank

Abstract

The existing tax policies towards gasoline and diesel cars in European countries provide a unique opportunity to analyze quality-based price discrimination and implied tax incidence. We develop an econometric framework for the demand and pricing of gasoline and diesel cars. Consumers choose a gasoline or a diesel car based on their annual mileage. Manufacturers set gasoline and diesel car prices. Our empirical results show that the relative pricing of gasoline and diesel cars is consistent with price discrimination of a monopolistic type, and inconsistent with competitive models of pricing. On average, about 70 to 85 percent of the price differentials between gasoline and diesel cars can be explained by markup differences. The implied tax incidence is especially based on fuel taxes and less so on annual car taxes

Suggested Citation

  • VERBOVEN, Frank, 1999. "Price discrimination and tax incidence: Evidence from gasoline and diesel cars," Working Papers 1999003, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:1999003
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    File URL: https://repository.uantwerpen.be/docman/irua/be1217/eb1d5917.pdf
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    1. Degl’Innocenti, Marta & Girardone, Claudia & Torluccio, Giuseppe, 2014. "Diversification, multimarket contacts and profits in the leasing industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 231-252.

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