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Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

Author

Listed:
  • Ashley Langer

    (Department of Economics, University of California, Berkeley)

  • Nathan H. Miller

    (Economic Analysis Group, Antitrust Division, Department of Justice)

Abstract

The relationship between gasoline prices and the demand for vehicle fuel efficiency is important for environmental policy but poorly understood in the academic literature. We provide empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. We derive a reduced-form regression equation from theoretical micro-foundations and estimate the equation with nearly 300,000 vehicle-week-region observations over the period 2003-2006. We find that vehicle prices generally decline in the gasoline price. The decline is larger for inefficient vehicles, and the prices of particularly efficient vehicles actually rise. Structural estimation that ignores these effects underestimates consumer preferences for fuel efficiency.

Suggested Citation

  • Ashley Langer & Nathan H. Miller, 2008. "Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy," EAG Discussions Papers 200811, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:200811
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    File URL: https://www.justice.gov/atr/public/eag/240080.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Erin Baker, 2012. "Option Value and the Diffusion of Energy Efficient Products," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    2. Chandra, Minal, 2022. "Investigating the impact of policies, socio-demography and national commitments on electric-vehicle demand: Cross-country study," Journal of Transport Geography, Elsevier, vol. 103(C).
    3. Hymel, Kent M. & Small, Kenneth A. & Dender, Kurt Van, 2010. "Induced demand and rebound effects in road transport," Transportation Research Part B: Methodological, Elsevier, vol. 44(10), pages 1220-1241, December.
    4. Liviana Tio & Purwanto, 2017. "The Influence of Crude Oil Price, Consumer Confidence, Exchange Rate and GDP Growth Rate Toward Sales Number of PT. Toyota Astra Motor, Indonesia," Noble International Journal of Business and Management Research, Noble Academic Publsiher, vol. 1(1), pages 49-54, January.
    5. Beschorner, Patrick Frank Ernst, 2008. "Do Shorter Product Cycles Induce Patent Thickets?," ZEW Discussion Papers 08-098, ZEW - Leibniz Centre for European Economic Research.
    6. Liu, Yizao, 2010. "Gasoline Prices, Fuel Economy Efficiency And Automobile Replacement Dynamics," Working Paper series 148290, University of Connecticut, Charles J. Zwick Center for Food and Resource Policy.
    7. Erin Baker, 2012. "Option Value and the Diffusion of Energy Efficient Products," The Energy Journal, , vol. 33(4), pages 48-60, October.
    8. Musti, Sashank & Kockelman, Kara M., 2011. "Evolution of the household vehicle fleet: Anticipating fleet composition, PHEV adoption and GHG emissions in Austin, Texas," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(8), pages 707-720, October.
    9. Arawomo, Damilola F. & Osigwe, Augustine C., 2016. "Nexus of fuel consumption, car features and car prices: Evidence from major institutions in Ibadan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1220-1228.
    10. Ken Heyer & Carl Shapiro & Jeffrey Wilder, 2009. "The Year in Review: Economics at the Antitrust Division, 2008–2009," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(4), pages 349-367, December.
    11. Yizao Liu, 2010. "Gasoline Prices, Fuel Economy Efficiency And Automobile Replacement Dynamics," Working Papers 02, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    12. Todd K. BenDor, 2012. "The System Dynamics of U.S. Automobile Fuel Economy," Sustainability, MDPI, vol. 4(5), pages 1-30, May.
    13. Anna Alberini & Massimo Filippini & Markus Bareit, 2014. "Does the Swiss Car Market Reward Fuel Efficient Cars? Evidence from Hedonic Pricing Regressions, Matching and a Regression Discontinuity Design," CER-ETH Economics working paper series 14/190, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    14. Bruno De Borger & Jan Rouwendal, 2014. "Car User Taxes, Quality Characteristics, and Fuel Efficiency Household Behaviour and Market Adjustment," Journal of Transport Economics and Policy, University of Bath, vol. 48(3), pages 345-366, September.

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    More about this item

    Keywords

    Automobiles; Gasoline; Consumer Preference; Demand; Fuel Efficiency;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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