Automobile Prices and Quality: Did the Gasoline Price Increase Change Consumer Tastes in the U.S.?

Abstract

A hedonic model of automobile prices that takes gasoline costs into account is developed and used to examine whether gasoline price increases (especially those related to the 1973 and 1979 oil shocks) changed consumer evaluations of the relative qualities of used cars in the U.S. during 1970–1981. We test the null hypothesis that the characteristics' coefficients remained constant over time. It is rejected if gasoline costs are excluded from the model but not if they are included. Alternative approaches are developed to show that the gasoline price increases alone can explain much of the observed changes in the coefficients.