The Price Evolution in China's Automobile Market

Shanjun LI, Junji XIAO, Yimin LIU

Research output: Journal PublicationsJournal Article (refereed)peer-review

27 Citations (Scopus)


The automobile market in China has seen unprecedented expansion during the past decade with rapid model turnover and dramatic price decline. This paper aims to document the evolution of price and investigate the sources of price decline, paying attention to both market structure and cost factors. We estimate a market equilibrium model with differentiated multiproduct oligopoly using market-level sales data in China together with information from household surveys. Our counterfactual simulations show that (quality-adjusted) vehicle prices have dropped by 33% from 2004 to 2009. The decrease in markup from intensified competition accounts for about one third of this change and the rest comes from cost reductions through learning by doing and other channels. In addition, our simulations show that the price decline would have been larger had it not been for the growth of household income during this period.

Original languageEnglish
Pages (from-to)786-810
Number of pages25
JournalJournal of Economics and Management Strategy
Issue number4
Publication statusPublished - Dec 2015
Externally publishedYes

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