What Drives Home Market Advantage?
In the automobile industry, as in many tradable goods markets, firms usually earn their highest market share within their domestic market. The goal of this paper is to disentangle the supply- and demand-driven sources of the home market advantage. While trade costs, foreign production costs, and taste heterogeneity all matter for market outcomes, we find that a preference for home brands is the single most important driver of home market advantage - even after controlling for brand histories and dealer networks. Furthermore, we also find that consumers favor domestically producing brands regardless of the historical brand origin.
We are grateful to Arnaud Costinot, Michael Dinerstein, Jonathan Eaton, Teresa Fort, Charlie Murry, and Ralph Ossa for insightful conversations, to our discussants Treb Allen, Penny Goldberg, Keith Head, Ferdinando Monte and Mahmut Yasar for valuable comments and suggestions, and to seminar participants at the Princeton IES summer workshop, NBER summer institute and various presentations for comments and suggestions. This work was completed in part with resources provided by the University of Chicago Research Computing Center. Kathie Chuang, Jacob Dorn, Adrian Geilen, Zhida Gui, John Lennox, and Ivy Malao provided excellent research assistance. The authors gratefully acknowledge the support of the National Science Foundation (under grants SES-1459950 and SES-1459905). Coşar wishes to thank the University of Chicago Booth School of Business' Initiative on Global Markets and Stockholm School of Economics, and Tintelnot wishes to thank the Andrew and Betsy Rosenfield Program in Economics, Public Policy, and Law at the Becker Friedman Institute for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
A. Kerem Coşar, Paul L.E. Grieco, Shengyu Li, Felix Tintelnot, What drives home market advantage?, Journal of International Economics, Volume 110, 2018, Pages 135-150, ISSN 0022-1996, https://doi.org/10.1016/j.jinteco.2017.11.001. citation courtesy of