Academic journal article Monthly Labor Review

Gas Prices' Effects on the Automobile Market

Academic journal article Monthly Labor Review

Gas Prices' Effects on the Automobile Market

Article excerpt

The price of gasoline can have a significant effect on the total cost of owning and operating a vehicle. Economists Meghan R. Busse, Christopher R. Knittel, and Florian Zettelmeyer analyze how changes in gas prices affect the selling prices and market shares of new and used vehicles in their working paper titled "Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets" (NBER Working Paper 15590, December 2009). The results of the study offer insight into consumers' reactions to changes in fuel prices.

The research shows that, when the price of gasoline increased by $1, the least fuel-efficient quartile of the market for used automobiles suffered a 5-percent decrease in market share. The same $1 price increase resulted in a 7-percent increase in market share for the most fuel-efficient quartile of used cars. The market for new vehicles showed a greater response to the price change. The research shows that the $1 price increase elevated the market share of new vehicles in the upper quartile of fuel efficiency by 20 percent and decreased the market share of new vehicles in the least fuel-efficient quartile by 24 percent.

The study also includes data on the changes in market share for different classes of vehicles in response to a $1 change in gas prices. …

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