A COMPARATIVE ANALYSIS OF THE PRICE-QUALITY RELATION OF AMERICAN AND FOREIGN AUTOMOBILES, 1971-80

JOHN VINCENT KIRNAN, Fordham University

Abstract

This study used hedonic price analysis to investigate the price-quality relation of American and foreign automobiles for the period 1971-80. One of the primary objectives of the study was to determine whether a difference in the price-quality relation for American and foreign automobiles could explain the dramatic increase in the import share of the U.S. new car market that occurred during this period.^ To conduct the analysis, an extensive automotive data base was developed containing physical and performance characteristics data on more than 1,400 models produced during the sample period.^ Two separate models were specified, one which evaluated quality in terms of an automobile's physical attributes, the other defining quality on the basis of an automobile's performance characteristics. Separate relationships were estimated for domestic and foreign models for each sub-model for each year from 1971 through 1980. Parameters were also estimated by pooling all domestic and foreign models for each year from 1971 through 1980 and by pooling all models for each two-year period. All estimation was done using ordinary least squares regression analysis.^ Examination of the regression results suggests a number of important conclusions. First, the results emphasized the importance of both physical and performance characteristics in explaining variation in new car prices for each of the years 1971-80. Second, the study demonstrated quite conclusively that the dramatic increase in import penetration that occurred during the 1970's was primarily due to a decline in the relative price of foreign cars. This was particularly pronounced after 1977, a period which witnessed the largest gains in import penetration. Third, the study found that consumers, in at least a few of the years examined, were willing to pay a higher price for such performance characteristics as acceleration, comfort and fuel economy in a foreign car than in a domestic car. This preference, in addition to the significant decline in the relative price of foreign cars mentioned above, suggests that foreign cars may have enjoyed a distinct quality advantage over American cars during this period. ^

Subject Area

Economics

Recommended Citation

KIRNAN, JOHN VINCENT, "A COMPARATIVE ANALYSIS OF THE PRICE-QUALITY RELATION OF AMERICAN AND FOREIGN AUTOMOBILES, 1971-80" (1984). ETD Collection for Fordham University. AAI8506341.
https://fordham.bepress.com/dissertations/AAI8506341

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