Working Paper: CEPR ID: DP10852
Authors: Kerem Coar; Paul L. E. Grieco; Shengyu Li; Felix Tintelnot
Abstract: In the automobile industry, as in many tradable goods markets, firms usually earn their highest market share within their domestic market. The goal of this paper is to disentangle the supply- and demand-driven sources of the home market advantage. While trade costs, foreign production costs, and taste heterogeneity all matter for market outcomes, we find that a preference for home brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks. Furthermore, we also find that consumers favor domestically producing brands regardless of the historical brand origin.
Keywords: automobile industry; market segmentation; trade; foreign direct investment
JEL Codes: F1; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| preference for home brands (D12) | home market advantage (F23) |
| local production of any model (O41) | local taste for the brand (L66) |
| local taste for the brand (L66) | home market advantage (F23) |
| removal of tariffs and trade costs (F19) | home market advantage (F23) |