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We assess the impact on demand and producers’ costs of a new technology implemented in the US auto industry, the 2 mm program. This is a fascinating case partially because of the unique collaboration among public agencies and a consortium of manufacturers and universities. Using a type of hedonic price model for demand, we show that the new technology was responsible for a short-lived increase in demand for vehicles produced by US automakers at increased producers’ costs. Firms that refused to participate in the consortium attained smaller net gains implementing the technology independently. Overall, our approach differs from that of previous analysts in that we (1) separate demand from supply, (2) employ a comprehensive vehicle database, spanning 1981–1998 data, including data on virtually all vehicle models sold in the USA, as well as data on plants’ and producers’ technology characteristics, and (3) rely on sales and production data rather than plant data. Also, we quantify the cost of not participating in the consortium.
Acknowledgements
This research is part of an overall project conducted during 1999–2002. We especially thank Sue Helper, Alvaro E. Pereira, Rich Roth, and Dan Whitney, who were members of the research team, for their excellent suggestions on our part of the overall research; Stan Abraham and Eric Cahill, who helped input the data into the database; Stephanie Shipp, Maryellen Kelley, Jeanne Powell, Rosalie Ruegy, and others at the Advanced Technology Program of the National Institute of Standards and Technology (NIST) for their useful comments on our research; the leaders of the Auto Body Consortium (ABC) who provided much of the background information for our research; the many managers, workers, and other staff at the plants and agencies where we conducted interviews; Ariel Pakes and Amil Petrin who furnished us the initial data base that we modified; and Adam Jaffe and other academics at the National Bureau of Economic Research (NBER) for their comments during an NBER seminar in 2001. Also, we deeply appreciate the careful, thorough, and excellent review that each of the three reviewers did. We accept full responsibility for the opinions expressed in this paper. The research was funded through contract number 30-5025-19-0-78 from the NBER.