Developing a used car pricing model applying Multivariate Adaptive regression Splines approach

Abstract

Although the used car market in India is enormous, with an annual 27.1 billion USD worth of car sales, no academic study examining the pricing of Indian used cars is available. The average on-road life of cars in India is high, exceeding twenty years and pass through multiple hands. The price of old cars is also a primary determinant of the prices of new cars. The article discusses the non-linear reduction of used car prices on account of age, kilometer driven, and the number of previous owners of the cars. In addition to using the Ordinary Linear Squares (OLS), we also applied Multivariate Adaptive Regression Splines (MARS) techniques to capture non-linear price relationships with other depreciating variables. The resulting error estimation from these two methods demonstrates that the complexity of non-linear modeling using MARS significantly improves fitment accuracy.