Short-run Pricing Strategies to Increase Corporate Average Fuel Economy

David L Greene

Economic Inquiry, 1991, vol. 29, issue 1, 101-14

Abstract: Since 1974, the average fuel economy of new cars has doubled from fourteen to twenty-eight miles per gallon. Shifts in sales to more fuel efficient models within a product line accounted for little of the improvement. This paper explores the use of pricing strategies to shift sales to achieve a legislated fuel economy target. A multinomial logit model is used to compute surcharges and rebates that leave consumer satisfaction unchanged yet increase the sales-weighted average fuel economy. The results suggest pricing strategies are efficient for small improvements in fuel economy, but are expensive for large improvements. Copyright 1991 by Oxford University Press.

Date: 1991
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