Title: Prices, production, and inventories over the automotive model year
Description: "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"--National Bureau of Economic Research web site.
Subjects: Automobile industry and trade, Automobiles, Inventories, Mathematical models, Prices