Chyi-Ing Lin, Jer-Shiou Chiou and Ben-Chieh Liu
Japanese penetration of the U.S. automobile market is a success story in international trade. There is a widespread view that quality of Japanese cars has helped their success. In this chapter, we use the state-dependent framework of the consumer theory to argue that it is the quality, complementarity and prices of gasoline and automobiles that enable the Japanese producers to succeed in the U.S. market. We further substantiate our conjecture by empirically testing the hypothesis that quality, in addition to low prices and fuel economy, had helped Japanese automobile producers penetrate the U.S. market. A time series index of quality for Japanese and U.S. cars is constructed by using the "trouble index" reported in Consumer Reports. The index is then used, along with other relevant data, to estimate the joint effect of gasoline price and quality on Japanese share in the U.S. automobile market. Our results show that these two factors have had a statistically significant effect on Japanese share in the U.S. market, indicating that U.S. producers could regain a significant market share by improving their quality and reliability.
On the issue of Japanese penetration of the U.S. automobile market, many have suggested that low prices, fuel economy and quality have made it possible. That is, economy and quality are important factors. 1 It has also been suggested that despite the decline in their traditional advantages of low prices and high gasoline mileage since the 1980s, Japanese producers have been able to maintain and even improve their position in the U.S. automobile market because of the quality of their products.