Automobile demand studies typically include price, income, credit availability,
and automobile stocks as independent variables. One issue that has been
debated in the literature is whether to include variables measuring automobile
quality, which are typically derived from Consumer Reports and surveys by J.D.
Power and Associates, a major marketing research firm. Thus, complex research
studies often use data from sources that both managers and consumers read.
Excluding quality variables from demand estimation studies could create econometric
problems. The estimated price elasticity of demand coefficient would be
biased downward if a model is estimated without including quality variables and
if quality is positively associated with price and demand. Statistical and econometric
problems can also arise if the independent variables in the model are
highly correlated with each other. It may be difficult to separate out the effect
of price from the other variables in this case. These issues again illustrate the
problem of estimating the relationship between price and quantity demanded,
“all else held constant.”
Automobile demand studies typically include price, income, credit availability,and automobile stocks as independent variables. One issue that has beendebated in the literature is whether to include variables measuring automobilequality, which are typically derived from Consumer Reports and surveys by J.D.Power and Associates, a major marketing research firm. Thus, complex researchstudies often use data from sources that both managers and consumers read.Excluding quality variables from demand estimation studies could create econometricproblems. The estimated price elasticity of demand coefficient would bebiased downward if a model is estimated without including quality variables andif quality is positively associated with price and demand. Statistical and econometricproblems can also arise if the independent variables in the model arehighly correlated with each other. It may be difficult to separate out the effectof price from the other variables in this case. These issues again illustrate theproblem of estimating the relationship between price and quantity demanded,“all else held constant.”
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