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| Title: | | Portfolio considerations in differentiated product purchases: An application to the Japanese automobile market  |
| Authors: | | Wakamori, Naoki |
| Issue Date: | | 2011 |
| Series/Report no.: | | Bank of Canada Working Paper 2011,27 |
| Abstract: | | Consumers often purchase more than one differentiated product, assembling a portfolio, which might potentially affect substitution patterns of demand and, as a consequence, oligopolistic firms' pricing strategies. This paper studies such consumers' portfolio considerations by developing a structural model that allows for flexible complementarities/substitutabilities depending on consumer attributes and product characteristics. I estimate the model using Japanese household-level data on automobile purchasing decisions. My estimates suggest that complementarities arise when households purchase a combination of one small automobile and one minivan as their portfolio. Ignoring such effects leads to a overstated counterfactual analysis. Simulation results suggest that a policy proposal of repealing the current tax subsidies for small ecofriendly automobiles would decrease the demand for those automobiles by 9%; less than the 14% drop predicted by a standard single discrete choice model. |
| Subjects: | | Economic models Market structure and pricing |
| JEL: | | D4 L5 Q5 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bank of Canada Working Papers
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