Exploring the Price Efficiency within Automotive Markets - An Application of Data Envelopment Analysis
Using a non-parametric data envelopment analysis (DEA) approach, this paper compares the price of each car model in a segment of the personal car market with the best possible price in view of the technology available given its particular combination of characteristics. In this approach, a car model is defined as price efficient if it offers customers the highest value per dollar spent for that set of characteristics. Likewise, a car model is inefficient if there is some other car model with a lower price having equivalent or higher quality, whereby a measure of the price efficiency is determined by the price reduction needed to make a car model efficient. The data set covers 141 different year 2002 car models. The vehicles that are listed by Edmunds.com as consumers’ most wanted are compared with those at the top of our efficiency list. It is found that the majority of cars at the top of the list are also listed as most wanted by Edmunds.com. Evidently, consumers who usually make decisions based on price and quality information will naturally employ a heuristic such as ‘buy car models at the top of price efficiency list’ if this list is made available to them.
Jiang, Pingjun, "Exploring the Price Efficiency within Automotive Markets - An Application of Data Envelopment Analysis" (2018). Department of Marketing Faculty Work. 17.