Applied Microeconomics | Industrial Organization: The Evolution of Market Power in the US Automobile Industry

Abstract:
We evaluate the evolution of measures of industry performance in the U.S. car and light truck market from 1980-2018. We estimate a differentiated products demand model for this market using aggregate 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 price-cost margins to industry trends in market structure and the composition of products, like the rise of import competition, introductions of the minivan and SUV, and changes in automobile characteristics. We find that although prices rose over time, concentration and market power decreased substantially. Consumer welfare increased over time. The fraction of the total surplus accruing to consumers also increased.

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