Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry

TLDR

The study develops and estimates a model of the U.S. automobile industry to examine the effects of the VER and exchange rate pass‑through.

Abstract

This paper develops and estimates a model of the U.S. Automobile Industry. On the demand side, a discrete choice model is adopted, that is estimated using micro data from the Consumer Expenditure Survey. The estimation results are used in conjunction with population weights to derive aggregate demand. On the supply side, the automobile industry is modelled as an oligopoly with product differentiation. Equilibrium is characterized by the first order conditions of the profit maximizing firms. The estimation results are used in counterfactual simulations to investigate two trade policy issues: the effects of the VER, and exchange rate pass-through.