Portfolio considerations in differentiated product purchases: An application to the Japanese automobile market

Arbeitspapier

Consumers often purchase more than one differentiated product, assembling a portfolio, which might potentially affect substitution patterns of demand and, as a consequence, oligopolistic firms' pricing strategies. This paper studies such consumers' portfolio considerations by developing a structural model that allows for flexible complementarities/substitutabilities depending on consumer attributes and product characteristics. I estimate the model using Japanese household-level data on automobile purchasing decisions. My estimates suggest that complementarities arise when households purchase a combination of one small automobile and one minivan as their portfolio. Ignoring such effects leads to a overstated counterfactual analysis. Simulation results suggest that a policy proposal of repealing the current tax subsidies for small ecofriendly automobiles would decrease the demand for those automobiles by 9%; less than the 14% drop predicted by a standard single discrete choice model.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Working Paper ; No. 2011-27

Classification and Topics

• Classification: Wirtschaft
• Subject: Economic models ; Market structure and pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wakamori, Naoki
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2011

Further information

• DOI: doi:10.34989/swp-2011-27
• Handle: http://hdl.handle.net/10419/53909