Working Paper: NBER ID: w21583
Authors: A. Kerem Cosar; 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: Home Market Advantage; Consumer Preferences; Trade Costs; Automobile Industry
JEL Codes: F14; F23; L11; L16; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| home brand preference (L68) | market share (L17) |
| removal of home preference (R21) | decline in home market advantage (R21) |
| removal of tariffs, trade, and foreign production costs (F13) | decline in home market advantage (R21) |
| domestic assembly plants preference (L23) | demand for brands (D12) |