What drives home market advantage?

A. Kerem Coşar, Paul L.E. Grieco, Shengyu Li, Felix Tintelnot

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

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 this 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 even if these brands originated from a foreign country. Therefore, our results suggest a novel demand effect of FDI: Establishing local production increases demand for the brand even in the absence of any cost savings.

Original languageEnglish (US)
Pages (from-to)135-150
Number of pages16
JournalJournal of International Economics
Volume110
DOIs
StatePublished - Jan 2018

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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