The U.S. Department of Justice seal, The United States Department of Justice
Search Antitrust


Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

Ashley Langer and Nathan Miller, EAG 08-11, December 2008
PDF   Accessible Text

The relationship between gasoline prices and the demand for vehicle fuel effciency is important for environmental policy but poorly understood in the academic literature. We provide empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. We derive a reduced-form regression equation from theoretical micro-foundations and estimate the equation with nearly 300,000 vehicle-week-region observations over the period 2003-2006. We find that vehicle prices generally decline in the gasoline price. The decline is larger for ineffcient vehicles, and the prices of particularly effcient vehicles actually rise. Structural estimation that ignores these effects underestimates consumer preferences for fuel effciency.

Get Antitrust Division Updates

Sign up for E-Mail Updates

Subscribe to News Feeds

Follow us @JusticeATR

To view PDF files on this website you need the free Adobe Reader.