The Price Effects of Intra-Brand Competition in the Automobile Industry: An Econometric Analysis

Phoenix Center Policy Paper Number 48

29 Pages Posted: 8 Feb 2017

See all articles by T. Randolph Beard

T. Randolph Beard

Auburn University

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: March 1, 2015

Abstract

Cars are expensive and most consumers know to shop dealers for the best prices. Yet, there is little to no empirical evidence on the price effects of intra-brand competition among different dealer franchises for the same automobile model. In this paper, using large samples of transactions for ten of the most popular new cars purchased in the state of Texas for the years 2011, 2012, and 2013, we estimate the effects of intra-brand competition on new car prices. Intra-brand competition is measured as the distance (in miles) to the nearest same-brand dealer. Significantly, for all but one automobile model we consider in our empirical analysis, we find that intra-brand competition does, in fact, lower new car prices for consumers. For the popular Honda Accord, for example, increasing the distance between Honda dealerships by thirty miles raises the price paid by consumers by about $500. Given that retail margins on auto sales are quite small (about 6% on average), the price reductions resulting from intra-brand competition are substantial relative savings for new-car consumers. Moreover, we find that the price effects of intra-brand competition are relatively strong compared to inter-brand competition — at the sample means, moving an intra-brand dealer one mile closer reduces prices by the equivalent of an increase in 35 inter-brand rivals.

Keywords: Automobile, Competition, Intrabrand, Interbrand, Car Prices, Econometric, Antitrust

JEL Classification: L62

Suggested Citation

Beard, T. Randolph and Ford, George S. and Spiwak, Lawrence J., The Price Effects of Intra-Brand Competition in the Automobile Industry: An Econometric Analysis (March 1, 2015). Phoenix Center Policy Paper Number 48, Available at SSRN: https://ssrn.com/abstract=2913117 or http://dx.doi.org/10.2139/ssrn.2913117

T. Randolph Beard

Auburn University

415 West Magnolia Avenue
Auburn, AL 36849
United States

George S. Ford (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
51
Abstract Views
428
rank
423,280
PlumX Metrics