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

Economic Analysis Group Discussion Paper No. EAG 08-11

43 Pages Posted: 11 Dec 2008

See all articles by Nathan Miller

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Ashley Langer

UC Berkeley Department of Economics

Date Written: December 1, 2008

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.

Suggested Citation

Miller, Nathan and Langer, Ashley, Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy (December 1, 2008). Economic Analysis Group Discussion Paper No. EAG 08-11. Available at SSRN: https://ssrn.com/abstract=1313155 or http://dx.doi.org/10.2139/ssrn.1313155

Nathan Miller (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Ashley Langer

UC Berkeley Department of Economics ( email )

508-1 Evans Hall #3880
Berkeley, CA 94720
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
321
Abstract Views
1,690
rank
92,393
PlumX Metrics