Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles

50 Pages Posted: 27 Aug 2015

See all articles by Eugenio J. Miravete

Eugenio J. Miravete

University of Texas at Austin; Centre for Economic Policy Research (CEPR)

Maria J. Moral

National Distance Education University (UNED)

Jeff Thurk

University of Notre Dame

Date Written: August 2015

Abstract

Spurred by Volkswagen's introduction of the TDI diesel engine in 1989, market penetration of diesel cars in Europe increased from 10% in 1990 to over 50% in 2000. Using Spanish automobile registration data, we estimate an equilibrium discrete choice, oligopoly model of horizontally differentiated products. We find that changing product characteristics and the increasing popularity of diesels leads to correlation between observed and unobserved (to the researcher) product characteristics, an aspect we allow for in the estimation. Despite widespread imitation by its rivals, Volkswagen was able to capture 32% of the potential innovation rents and diesels accounted for approximately 60% of the firm's profits. Moreover, diesels amounted to an important competitive advantage for European auto makers over foreign imports. We provide evidence that the greenhouse emissions policy enacted by European regulators, and not preferential fuel taxes, enabled the adoption of diesels. In so doing, this non-tariff policy was equivalent to a 20% import tariff; effectively cutting imports in half.

Keywords: diesel cars, emission standards, import tariff equivalence, innovation rents

JEL Classification: F13, L62, O33

Suggested Citation

Miravete, Eugenio J. and Moral Rincón, Maria J. and Thurk, Jeff, Innovation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles (August 2015). CEPR Discussion Paper No. DP10783, Available at SSRN: https://ssrn.com/abstract=2652153

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

Department of Economics
1 University Station C3100
Austin, TX 78712-0301
United States
512-232-1718 (Phone)
512-471-3510 (Fax)

HOME PAGE: http://www.eco.utexas.edu/facstaff/Miravete

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maria J. Moral Rincón

National Distance Education University (UNED) ( email )

Calle Bravo Murillo, 38
Madrid 28006, Madrid 28040
Spain

Jeff Thurk

University of Notre Dame ( email )

3047 Jenkins-Nanovic Hall
Notre Dame, IN New South Wales 46556
United States
5746313083 (Phone)

HOME PAGE: http://https://www3.nd.edu/~jthurk/

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