Automobile engine variants and price discrimination

Oyvind Thomassen

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: Using a structural model of demand for automobile engine variants, this paper finds that there is second-degree price discrimination: markups increase with engine size. Still, average markups are lower than when models have just one engine. The paper develops the first empirical demand framework suitable for markets with variants. There is an unobserved product characteristic and a consumer-specific logit term for classes of products, but both are fixed across variants. Fixed effects control for unobservables. The literature’s assumption of orthogonality between unobserved and observed product characteristics is not needed.

Keywords: second-degree price discrimination; automobiles; discrete-choice demand models (search for similar items in EconPapers)
JEL-codes: C25 L11 L62 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces10.15

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