Product quality , product price , and share dynamics in the German compact car market

The present paper examines one of the central elements of evolutionary thinking competition formalized by the replicator dynamics mechanism. Using data on product characteristics of automobiles sold on the German domestic market over the period 2001-2006, we construct a competitiveness or tness variable for each car model applying non-parametric e ciency measurement techniques. The basic question we intend to answer is whether cars providing a higher quality-price ratio for consumers tend to increase their market share compared to variants with lower quality-price ratios. The relationship between a car models' tness and its market performance is empirically tested in a regression framework. The results show that the principle of `growth of the tter' is working as suggested by evolutionary theory. In particular, we nd that car models with considerably lower tness than the market average lose, whereas models with above-average tness gain additional market shares. JEL classi cation: O33, D12, L15 Keywords: Replicator Dynamics, Product Characteristics, Data Envelopment Analysis *Friedrich Schiller University Jena, Faculty of Economics and Business Administration, Jena Carl-Zeiss-Strasse 3, D-07743, Jena, Germany, Tel.: +493641/943200, E-Mail: [email protected] „Technical University Darmstadt, Fachbereich Rechtsund Wirtschaftswissenschaften, Residenzschloss, D-64283 Darmstadt, Germany, Tel.: +496151/163693, E-Mail: [email protected]. …Friedrich Schiller University Jena, DFG-RTG The Economics of Innovative Change , CarlZeiss-Strasse 3, D-07743 Jena, Germany, Tel.: +493641/943279, E-Mail: [email protected]. Jena Economic Research Papers 2010 024