a consumer repurchased the same vehicle brand also had a positive coefficient,
indicating a positive effect on demand. Because repurchasing the same brand lowers
search and transactions costs, this variable had the expected positive sign.
These results indicate that consumers react not just to the monetary price of an
automobile, but also to the full purchasing costs, including the costs of obtaining
information and searching for the vehicle. The study also determined that younger
consumers and those residing on the Pacific Coast had smaller demands for domestic
vehicles than other age and geographic groups.
Table 4.4 shows McCarthy’s estimated price and income elasticities for both the
entire market and the domestic, European, and Asian segments. The estimated
demand for automobiles in this study was generally price inelastic, although the
elasticity estimate for European models was slightly greater than 1 in absolute
value. The cross-price elasticities were estimated to be positive numbers, indicating
substitute goods, as economic theory suggests. Sales of European and Asian
automobiles responded more to changes in the prices of substitute brands than
did sales of U.S. automobiles. All income elasticities were found to be greater than
+1.00, indicating substantial sensitivity to income changes.