| This dissertation consists of two chapters and several technical appendices, all of which examine the welfare effects of new goods.;Chapter One examines the welfare effects from the hybrid vehicle innovation in the U.S. auto market between the years 2000 and 2008. Several structural discrete choice models are used to estimate the demand and supply curves for all vehicles in the U.S. auto market. Using the parameter estimates of the models, several counterfactual analyses are conducted examining the changes in producer surplus, the extent of first mover advantages, profit cannibalization, and business stealing effects from competitors. On the consumer side, price and variety effects are estimated which help identify the benefits from a productive and allocative efficiency standpoint, respectively. Furthermore, this chapter develops a simulation technique to recover these effects while allowing income to enter the indirect utility function nonlinearly. The results of this chapter suggest that, although hybrid vehicles represent a small share of the overall auto market, some households are willing to pay a premium for "green" and environmentally-friendly vehicles. Toyota was the first to recognize this market niche and responded by developing the Prius. Since the introduction, Toyota has enjoyed significant first mover advantages earning substantial economic profits and sustained growth in the hybrid vehicle market segment.;Chapter Two takes a more detailed approach to examine why consumers purchase hybrid vehicles. In particular, I show that in strictly financial terms, hybrid vehicles do not make sense. After factoring in vehicle depreciation, interest on financing, maintenance and repair costs, fees and taxes (including tax incentives), and fuel expenditures, I find that the majority of hybrid vehicle owners will not recover the higher premium through decreased fuel expenditures after five years of ownership. To explain why consumers continue to purchase them, a rich consumer demand model is developed using detailed household level data that explicitly links the year, make, and model of each vehicle a household owns to their specific demographic type. The results of this chapter suggest that, although hybrid vehicles may not make financial sense, for some households they are a better match to their preference type. In particular, one of the primary reasons consumers purchase hybrid vehicles is for conspicuous environmental effects; consumers not only want to be green, they want to look green as well. As a result, some consumers are willing to pay a premium to send a signal to their community that they are "green" and living a low resource intensive lifestyle. |
