Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201876
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7650
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We introduce a computationally tractable dynamic equilibrium model of the automobile market where new and used cars of multiple types (e.g. makes/models) are traded by heterogeneous consumers. Prices and quantities are determined endogenously to equate supply and demand for all car types and vintages, along with the ages at which cars are scrapped. The model allows for transactions costs, taxes, flexible specifications of car characteristics, consumer preferences, and heterogeneity. We apply the model to two examples: a revenue-neutral replacement of the new vehicle registration tax with a higher fuel tax and a hypothetical “merger to monopoly” in an oligopolistic new car market. We show substantial gains in consumer welfare from the tax policy change, as well as important effects on government revenues, automobile prices, driving, fuel consumption and CO2 emissions, while the merger leads to substantial welfare losses.
Subjects: 
secondary markets
trade
consumer heterogeneity
transactions costs
dynamic programming
extreme value distribution
dynamic discrete choice
multinomial logit model
stationary equilibrium
Markov chains
invariant distributions
JEL: 
D43
D61
H21
H23
L90
Q40
Q58
Document Type: 
Working Paper
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