The Markets for Gasoline and Diesel Cars in Europe

Centre for Economic Policy Research Discussion Paper Series No. 2069

Posted: 26 Mar 1999

See all articles by Frank Verboven

Frank Verboven

Catholic University of Leuven (KUL) - Department of Applied Economics; Centre for Economic Policy Research (CEPR)

Date Written: February 1999

Abstract

The existing tax policies towards gasoline and diesel cars in the European countries provide a unique opportunity to analyze intertemporal investment aspects in consumer behavior and quality-based price discrimination aspects in manufacturer pricing behavior. We develop an econometric framework of demand and pricing for gasoline and diesel cars. Consumers choose a gasoline or a diesel car based on their annual mileage. Manufacturers set gasoline and diesel car prices. Our empirical results show that consumer implicit interest rates are close to capital market rates, and considerably lower than the previous estimates obtained in the literature on consumer appliances. Furthermore, the results show that the relative pricing of gasoline and diesel cars is consistent with a monopoly model and inconsistent with competitive models of pricing. On average, about 70 to 85 percent of the price differentials between gasoline and diesel cars can be explained by markup differences. The implied tax incidence is especially based on fuel taxes and less so on annual car taxes.

JEL Classification: D1, D4, L1

Suggested Citation

Verboven, Frank, The Markets for Gasoline and Diesel Cars in Europe (February 1999). Centre for Economic Policy Research Discussion Paper Series No. 2069, Available at SSRN: https://ssrn.com/abstract=154658

Frank Verboven (Contact Author)

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 1 632 6944 (Phone)
+32 1 632 6732 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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