DP10852 What Drives Home Market Advantage?
|Author(s):||Kerem Cosar, Paul L. E. Grieco, Shengyu Li, Felix Tintelnot|
|Publication Date:||September 2015|
|Keyword(s):||automobile industry, market segmentation, trade and foreign direct investment|
|Programme Areas:||Industrial Organization, International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10852|
In the automobile industry, as in many tradable goods markets, firms usually earn their highest market share within their domestic market. The goal of this paper is to disentangle the supply- and demand-driven sources of the home market advantage. While trade costs, foreign production costs, and taste heterogeneity all matter for market outcomes, we find that a preference for home brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks. Furthermore, we also find that consumers favor domestically producing brands regardless of the historical brand origin.