Speaker: Felix Tintelnot is an Assistant Professor in the Department of Economics at the University of Chicago. More »
Abstract: In the automobile industry, as in many tradable goods markets, firms earn their highest market share within their domestic market. This home market advantage persists despite substantial integration of international markets during the past several decades. The goal of this paper is to quantify the supply- and demand-driven sources of the home market advantage and to understand their implications for international trade and investment. Building on the random coefficients demand model developed by Berry, Levinsohn, and Pakes (1995), we estimate demand and supply in the automobile industry for nine countries in three continents, allowing for unobserved taste and cost variation at the model and market levels. The estimated model helps to examine the contributions of tariffs, trade and FDI costs, home preference, and taste heterogeneity to domestic firms’ home market advantage as well as conduct policy analysis.
Last Updated: May 15, 2015