Audi vs. BMW – On the Physical Heterogeneity of German Luxury Cars

Vistesen, Claus (2009): Audi vs. BMW – On the Physical Heterogeneity of German Luxury Cars.

Abstract

This paper uses Logit and Probit regressions to test for and quantify the physical heterogeneity between German luxury cars. Using a matched sample database, the binary response variable consisting of Audis and BMWs is fitted to a matrix of physical characteristics such as power, torque, fuel consumption, engine displacement etc. The results indicate that having a forced induction engine (e.g. turbo) is associated with a 51% lower probability of observing a BMW and that increasing fuel consumption by 1 liter per 100km lowers the probability of observing a BMW with 61%. The results are discussed in relation to the idea that consumers may not differentiate across luxury products on the basis of physical characteristics and how this may introduce a bias with respect to predicting demand in the context of available market data.

• Item Type: MPRA Paper
• Language: English
• Keywords: Audi, BMW, automobile industry, pure characteristics demand models, luxury cars
• Subjects: L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment

References

Audi and BMW websites (Germany, price catalogues); see data CD for BMW catalogues. The data for Audi is tabulated directly from Audi.de.

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Gujarati, Damodar N. (2003) – Basic Econometrics 4th edition McGrawHill

Thomassen, Øyvind (2007) – A Pure Characteristics Model of Demand for Cars, University of Oxford (February 28th 2007)24

Vickers, Jonathan S & Renand Franck (2003) – The Marketing of Luxury Goods: An exploratory study – three conceptual dimensions, the Marketing Review, 2003 ; 3, pp. 459-47825