Title: Competition or cooperation: a case study of the 2005 'employee discount pricing' promotions in the US automobile industry

Authors: Prasun Bhattacharjee

Addresses: Department of Economics and Finance, East Tennessee State University, Johnson City, TN, 37614, USA

Abstract: This paper considers the widely successful employee discount pricing (EDP) promotional program of 2005 to uncover the nature of competition in the US automobile industry, with a specific focus on the big three automakers. In contrast to previous research on automobile competition, this paper uses quarterly average dealer-level transaction price data to capture the short term nature of inter-firm competition that might be embedded in such promotional programs. In doing so, a structural oligopoly model of differentiated products is setup explicitly incorporating the nature of competitive interactions. Results imply that the overall nature of competitiveness in the US automobile industry is consistent with a static model of Bertrand behaviour without any changes in conduct among the big three during the EDP promotion period. These results corroborate the problems of inventory backlog faced by the big three in recent years and indicate that the EDP program has been more of a novel marketing intent on part of the big three to clear up such backlogs.

Keywords: structural oligopoly; product differentiation; competition; collusion; employee discount promotion; market structure.

DOI: 10.1504/IJEBR.2018.094390

International Journal of Economics and Business Research, 2018 Vol.16 No.3, pp.367 - 381

Received: 26 Jul 2017
Accepted: 21 Oct 2017
Published online: 31 Aug 2018 *

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