The Price Evolution in China's Automobile Market

44 Pages Posted: 19 Nov 2012 Last revised: 3 Mar 2014

See all articles by Shanjun Li

Shanjun Li

Cornell University - School of Applied Economics and Management

Junji Xiao

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics

Yimin Liu

Ford Motor Company

Multiple version iconThere are 2 versions of this paper

Date Written: January 2014

Abstract

The automobile market in China has seen unprecedented expansion during the past decade with rapid model turnover and dramatic price decline. This paper aims to document the evolution of price and investigate the sources of price decline, paying attention to both market structure and cost factors. We estimate a market equilibrium model with differentiated multi product oligopoly using market-level sales data in China together with information from household surveys. Our counterfactual simulations show that (quality-adjusted) vehicle prices have dropped by 33 percent from 2004 to 2009. The decrease in markup from intensified competition accounts for about one third of this change and the rest comes from cost reductions through learning by doing and other channels. In addition, our simulations show that the price decline would have been larger had it not been for the growth of household income during this period.

Keywords: China automobile industry, differentiated products, random coefficient discrete choice model

JEL Classification: L11, L62

Suggested Citation

Li, Shanjun and Xiao, Junji and Liu, Yimin, The Price Evolution in China's Automobile Market (January 2014). Available at SSRN: https://ssrn.com/abstract=2177749 or http://dx.doi.org/10.2139/ssrn.2177749

Shanjun Li

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Junji Xiao (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Decision Sciences & Managerial Economics ( email )

Shatin, N.T.
Hong Kong

Yimin Liu

Ford Motor Company ( email )

1 American Road, 233
Dearborn, MI 48121
United States

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