Price-quality relations for automobiles: a new approach

Abstract

The study uses quality characteristics of American produced cars over the period 1957-1971 to investigate their price variations. The principal attributes desired by car buyers are shown to be comfort, durability, economy, maneuverability, performance, safety and style. Methods of measuring these characteristics are given. Other variables are used to account for the exclusion of dealer preparation fees, and the inclusion of various options. Regression estimates are made for the variables taken from observations on 992 car models over the 15 year period; tables are given to illustrate the multicollinearity of the variables. The relative significance of individual characteristics is examined, and the use of a truncated model without proxy variables is discussed. Coefficients of regressions of list price on all and the most significant variables are tabulated. The research described shows that the bulk of observed price rises in car prices are due to improvements in quality, and the real price of cars did not increase during the years of the survey. /TRRL/