Regulation in Oligopolistic Markets with Di¤erentiated Products: The Demand for New Cars

In recent years governments have began to explore the role of taxation to e¤ect the relative demand for cars with di¤erent CO2 emissions. This paper explores the demand response in the market for new cars subsequent to changes in the pricing of vehicle emissions. Our model is founded upon a number of utility components, principally the average utility of each vehicle choice and variation in utility that derives from both observed and unobserved characteristics. This approach allows for non-proportional substitution and therefore facilitates the estimation of own and cross-elasticities that are con-sistent with prior expectations. Based upon an assumption of Bertrand pric-ing our modelling approach accounts for endogeneity of unobserved attributes and price, We present \u85ndings utilising a bespoke survey of households together wit