The Evolution of Market Power in the Us Auto Industry

37 Pages Posted: 12 Jul 2021 Last revised: 20 Jul 2021

See all articles by Paul L.E. Grieco

Paul L.E. Grieco

Pennsylvania State University - Department of Economics

Charles Murry

Boston College - Department of Economics

Ali Yurukoglu

Stanford University

Date Written: July 2021

Abstract

We construct measures of industry performance and welfare in the U.S. car and light truck market from 1980-2018. We estimate a differentiated products demand model for this market using product level data on market shares, prices, and product characteristics, and consumer level data on demographics, purchases, and stated second choices. We estimate marginal costs under the conduct assumption of Nash-Bertrand pricing. We relate trends in consumer welfare and markups to industry trends in market structure and the composition of products, like the rise of import competition, the proliferation of SUV's, and changes in vehicle characteristics. We find that although prices rose over time, concentration and market power decreased substantially. Consumer welfare increased over time due to improving product quality and falling marginal costs. The fraction of total surplus accruing to consumers also increased.

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Suggested Citation

Grieco, Paul L.E. and Murry, Charles and Yurukoglu, Ali, The Evolution of Market Power in the Us Auto Industry (July 2021). NBER Working Paper No. w29013, Available at SSRN: https://ssrn.com/abstract=3884707

Paul L.E. Grieco (Contact Author)

Pennsylvania State University - Department of Economics ( email )

University Park
State College, PA 16802
United States

Charles Murry

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Ali Yurukoglu

Stanford University

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