A Note on Changes in Industry Structure

Abstract

analysis; analysis 2 is the first additional analysis referred to above; analysis 3 is the second. It should be noted that use of the BLS series rather than Suits's series raises the square of the multiple correlation coefficient from o.85 (implying an adjusted coefficient of multiple correlation of 0.93) to 0.95, significantly higher. However, when contract duration is still used to divide real retail price (analysis 2), the coefficient of the ratio, and hence the elasticities with respect to price and contract duration, are not significantly altered. However, treatment of average contract duration as a separate variable (analysis 3) significantly changes the price elasticity but leaves the elasticity with respect to contract duration unchanged. Analysis 3 yields a price elasticity which is not markedly different from those obtained by previous investigators. The conclusion must be, I think, that by dividing real retail price by average contract duration, Suits imposed an unwarranted restriction on his statistical analysis and reduced his price elasticity to an unreasonably low level, while increasing his income elasticity to a level somewhat beyond that found in earlier investigations. Thus the influence of the automobile manufacturers on the sales of their product may well be greater than we might be led to believe on the basis of Suits's analysis. One further shortcoming in the way in which Suits introduces credit terms stems from the fact that credit terms are likely to affect new car sales differently in a decline than in an upswing. Availability of credit is a limiting factor primarily in those periods when, for other reasons, there are pressures for rapid expansion in sales. Thus, the marked easing of automobile credit terms in I955 may be regarded as permissive rather than causal. The fact that automobile credit remained relatively easy in I958 did little to stem the decline. One way ;to take account of this asymmetry in the effect of credit terms would be to allow for different elasticities with respect to average contract duration in periods in which sales were declining and in periods in which sales of new cars were increasing. However, Suits did not do this.9