German car makers report woes of 1993

Abstract

This paper investigates how product innovation and competition dynamics have driven the evolution of product efficiency in the Spanish auto market. We have collected data on more than 75 technical product features and discounted prices for a representative sample of car models commercialized within a 5-year period (2010–2015). Product efficiency is measured for each period by means of Data Envelopment Analysis (DEA). This technique identifies a best-buy technological frontier by comparing the price and product features of the different models. Furthermore, we track the dynamic evolution of product efficiency by computing and decomposing Malmquist indexes measuring the overall improvement in the car models analyzed. The decomposition of the Malmquist index brings new insights to the assessment of product innovation. First, the frontier shift indicates how much each model should have improved to simply maintain its comparative competitive appeal. Second, the catching-up effect indicates whether a model is getting closer to or farther away from the new (shifted) best-buy frontier. In the period analyzed we find important improvements in product features that were accompanied by price cutting. Both factors have contributed to significantly expand the best-buy frontier outwards. Audi, Volkswagen, Honda, BMW, Kia, Hyundai, Peugeot, Renault and Seat are identified as the brands that have contributed more to expand this frontier. In turn, Renault, Peugeot and Seat show the largest catching-up effects.