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

Ashley Langer and Nathan Miller
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Nathan Miller: Economic Analysis Group, Antitrust Division, Department of Justice

No 200811, EAG Discussions Papers from Department of Justice, Antitrust Division

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.

Keywords: Automobiles; Gasoline; Consumer Preference; Demand; Fuel Efficiency (search for similar items in EconPapers)
JEL-codes: L11 Q48 Q52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:doj:eagpap:200811

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