Essays on Energy Efficiency and Pricing Behavior in the U.S. Automobile Market: Evidence from Hybrid Electric Vehicles

This dissertation consists of three essays on the energy efficiency and pricing behavior of firms in the U.S. automobile market with a focus on Hybrid Electric Vehicles (HEVs).

The first essay analyzes the market share of HEVs and evaluates consumers' willingness to pay (WTP) for future fuel cost savings by purchasing fuel efficient HEVs. Estimates of consumers' WTP for future fuel cost savings and the finding of an implicit discount rate of 8.35%~14.35% suggest that consumers undervalue future fuel cost savings from purchasing HEVs, and that consumers want a return on their investment on fuel cost saving HEV technology in 7~11 years.

The second essay empirically investigates the existence of quality-based price discrimination in the U.S. automobile market. By estimating a structural model of demand and supply in the automobile market, I can recover marginal costs, markups and percentage markups for all vehicle models sold between 2000 and 2013. The extent of price discrimination is then examined by comparing markup and percentage markup differences between HEVs and gasoline vehicles. The results demonstrate that automobile manufactures charge both higher markups and higher percentage markups on their HEV models. On average, HEVs have higher markups by 11.1% compared to gasoline vehicles, and Toyota, a leader in the HEV market, charges higher markups on their HEV models compared to other manufacturers. The Toyota Prius, the top-selling hybrid car in the U.S. market, particularly enjoys a higher markup and percentage markup than other competitive vehicles.

The third essay provides a model of the automobile market where consumers have heterogeneous preferences, caring about both the environment and the physical quality of the product—specifically its fuel economy. Many of the results found by the model are to be expected: consumers buy fewer vehicles when the environmental damages (emissions) and prices of vehicles increase; more vehicles are sold when vehicles are equipped with better fuel technology; and consumers buy fewer vehicles as they become more pro-environmental. One unexpected finding stands out: a tax on gasoline vehicles always decreases total emissions, while a subsidy for environmentally friendly HEV adoption may not.