Automakers' short-run responses to changing gasoline prices

Ashley Langer, Nathan H. Miller

Research output: Contribution to journalArticle

17 Scopus citations

Abstract

We provide empirical evidence that automobile manufacturers use cash incentives to offset how gasoline price fluctuations affect the expected fuel expenses of automobile buyers. Regressions based on a database of incentives over 2003 to 2006 suggest that on average, manufacturers offset 40% of the change in relative fuel costs between vehicles due to gasoline price fluctuations. The results highlight that carbon taxes and emissions trading programs likelywould generate substantial substitution within vehicle classes, and studies that ignore manufacturer discounting likely underestimate consumer demand for fuel economy. The results also have implications for the optimal design of feebate programs.

Original languageEnglish (US)
Pages (from-to)1198-1211
Number of pages14
JournalReview of Economics and Statistics
Volume95
Issue number4
DOIs
StatePublished - Oct 28 2013

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ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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