Equilibrium Trade in Automobile Markets
Kenneth Gillingham (),
Fedor Iskhakov (),
John Rust () and
No 25840, NBER Working Papers from National Bureau of Economic Research, Inc
We introduce a computationally tractable dynamic equilibrium model of the automobile market where new and used cars of multiple types (e.g. makes/models) are traded by heterogeneous consumers. Prices and quantities are determined endogenously to equate supply and demand for all car types and vintages, along with the ages at which cars are scrapped. The model allows for transactions costs, taxes, flexible specifications of car characteristics, consumer preferences, and heterogeneity. We apply the model to two examples: a revenue-neutral replacement of the new vehicle registration tax with a higher fuel tax and a hypothetical “merger to monopoly” in an oligopolistic new car market. We show substantial gains in consumer welfare from the tax policy change, as well as important effects on government revenues, automobile prices, driving, fuel consumption and CO 2 emissions, while the merger leads to substantial welfare losses.
JEL-codes: L9 L98 Q4 Q5 R4 (search for similar items in EconPapers)
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Working Paper: Equilibrium trade in automobile markets (2019)
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