Quantifying Nation Equity with Sales Data: A Structural Approach

Abstract

Nation equity refers to a product's equity that is associated with its country of origin (COO). Generalized COO effects have previously been studied through experiments and surveys and measured by quality perception, product attitude, and purchase intention. We propose a structural equilibrium approach to assessing the additional market power COO offers, monetizing nation equity with product sales data, and computing the price premiums and discounts associated with nation equity. We apply this approach to China's personal computer market between 1995 and 2008 and find that COO does generate additional market power and affects firm markups. We find nation equity to be pervasive, significant, and multidimensional, and it evolves over time, but there is no simple correspondence between market share and nation equity. Large market shares do not necessarily mean positive nation equity and price premiums, negative nation equity and price discounts can evolve into positive nation equity and price premiums, and vice versa. We discuss the implications of our modeling approach and our findings for emerging markets in general, and for China in particular.