Search for an affordable clean car: Pricing of conventional and clean automobiles

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Search for an affordable clean car: Pricing of conventional and clean automobiles

Mandys, Filip

Abstract UK has one of the world’s largest automobile markets, with a growing share of alternative fuel vehicles (AFVs), and a great importance to the economy. However, an extensive insight into the price drivers of conventional vehicles (CVs) and AFVs is lacking in the literature. Therefore, this paper estimates the determinants of automobile prices, applying a hedonic pricing model to a novel, extensive dataset of 2008–19. Using adaptive Lasso and weighted quantile regressions, the key drivers of prices are performance and size, with the effect growing stronger with prices. More specifically, one standard deviation increase of engine power and weight increases prices by 16.9% and 14.7% respectively. AFVs display a significantly greater sensitivity to changes in car characteristics compared to CVs, especially to changes in performance, emissions, and equipment. Furthermore, hedonic price indices show that about 65% of the price increase in 2008–19 was caused solely by improvements in vehicle quality.

Highlights • Hedonic pricing model is applied to a new and extensive UK car market dataset. • Key drivers of prices are performance and size, with the effect growing with price. • One standard deviation rise in engine power & weight rises price by 16.9% & 14.7%. • AFV prices significantly more sensitive, especially to performance and emissions. • About 65% of the price increase in 2008–2019 caused by improvements to car quality.