Prices, Production and Inventories over the Automotive Model Year

Adam Copeland, Wendy Dunn, George Hall

NBER Working Paper No. 11257
Issued in April 2005
NBER Program(s):   EFG

This paper studies the within-model-year pricing and production of new automobiles. Using new monthly data on U.S. transaction prices, we document that for the typical new vehicle, prices fall over the model year at a 9.2 percent annual rate. Concurrently, both sales and inventories are hump shaped. To explain these time series, we formulate a market equilibrium model for new automobiles in which inventory and pricing decisions are made simultaneously. On the demand side, we use micro-level data to estimate time-varying aggregate demand curves for each vehicle. On the supply side, we solve a dynamic programming model of an automaker that, while able to produce only one vintage of a product at a time, may accumulate inventories and consequently sell multiple vintages of the same product simultaneously. The profit maximizing pricing and production strategies under a build-to-stock inventory policy imply declining prices and hump-shaped sales and inventories of the magnitudes observed in the data. Further, roughly half of the price decline is driven by inventory control considerations, as opposed to decreasing demand.

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Document Object Identifier (DOI): 10.3386/w11257


  • Copeland, Adam, Wendy Dunn and George Hal (2007) “Prices, Production and Inventories over the Automotive Model Year.” FEDS Working Paper 2005-25 ,
  • as "Inventories and the automobile market" in The RAND Journal of Economics, Volume 42, Issue 1, pages 121–149, Spring 2011

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