Essays on Competition and Innovations in the Automobile Markets

The central focus of my dissertation has been on the investigation of developments towards more competitive and innovative firm behaviour in the global automobile markets. The automobile companies meet each other in many product and geographical markets worldwide. A large proportion of their production is outside of their "home" country. In my work I focus on international most important car markets, namely US, European and German as the most important single European car market and a very innovative one. The increased competition in the automobile markets coexists with a trend towards more interfirm relationships (both equity and contractual, horizontal and vertical), which results in the complicated dynamic structure of the ownership and firm interactions in the automobile industry. The automotive manufacturers put also a lot of emphasis on innovation and new products introduction to preserve and/or increase their market shares (especially in the satiated triad traditional markets of Western Europe, United States and Japan). They try to win consumer loyalty already in the entry car market segments. In addition to the automobile industry focus of my dissertation, this work has been also aimed to be a contribution to the growing literature on the new empirical approaches in the IO, namely the estimation of structural oligopoly models for differentiated products. I study market conduct, the extent of competition and the effects of new products introduction, which actually have not been investigated so much empirically, in general and for the automobile industry in particular. The major focus of the first two papers is on the investigation of the firms' strategic behaviour interdependence across the markets and testing of the mutual forbearance hypothesis for the automobile markets. I use both menu and conjectural variation approaches to determine the equilibrium patterns of the firm behaviour in the automobile markets. Under the menu approach the firm equilibrium behaviour is identified with the help of statistical tests, which also have not been applied extensively in the past for the structural oligopoly models for differentiated products. The reliability of the results of such tests is addressed. Under the conjectural variation approach I construct the market conduct parameters and investigate the factors that may impact those firms' conjectures. In the third paper I focus on the investigation of the effects from the introduction of new car models in the automobile industry. The impact of new products and brand-name reputation on the market shares and the importance of such principle of differentiation as old versus new car models are investigated. Demand side is derived from discrete choice models: depending on the data available, different specifications on the demand side are estimated. The product-level data on quantities, prices and product characteristics are used. Given the absence of individual-level data on consumer car purchases, some consumer heterogeneity is introduced into the models through using age sales data for the German car market and the information on the empirical income distribution in the US and in the European countries (Belgium, France, Germany, Italy and the UK) to derive reasonable substitution patterns. Both cross-sectional and panel data are used in the estimations. The structure of my dissertation is as follows. The first essay of my dissertation investigates the mutual forbearance hypothesis and firm equilibrium interactions in the US automobile market. The second essay focuses on the impact of the degree of geographical and multiproduct market linkages on the firm behaviour in the European car market. The third paper looks at the innovation and competition patterns in the German automobile market