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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EAG Discussion Paper ; No. EAG 08-11

Classification and Topics

• Classification: Wirtschaft ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Energy: Government Policy ; Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
• Subject: Automobiles ; Gasoline ; Consumer Preference ; Demand ; Fuel Efficiency

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Langer, Ashley ; Miller, Nathan H.
• Event: Veröffentlichung
• (who): U.S. Department of Justice, Antitrust Division, Economic Analysis Group (EAG)
• (where): Washington, DC
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/202377
• Last update: 10.03.2025, 11:42 AM CET