A conditional logit estimation method is applied to measure the impact of gasoline prices on the mix of new-automobile purchases. The results show a strong cross-elasticity of small-car demand with respect to the price of gasoline. Adjustment of the automobile stock should be a significant component of the total response to rising prices. The Federal government is currently intervening directly in the new-car market by requiring minimum fuel-economy standards. An implication of the analysis is that a continued gasoline-price increase would lessen the upward pressure on large-car prices as a result of the Federal mandates. Demand for small cars can also be credited to the increase of multi-car and multi-earner households. 12 references, 5 tables.
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John Greenlees (1980) studied this question.