THE IMPACT OF COE PRICE ON BRAND SHARE IN THE NEW CAR AND HYBRID CAR MARKETS

Abstract

This paper examines the impact of Certificate of Entitlement (COE) price on brand share in the new car market and the hybrid electric car segment. In Singapore, the Vehicle Quota System (VQS) requires all vehicle owners to obtain COEs which are auctioned in fortnightly online bidding exercises and the final strike prices have been volatile. This study employs a multinomial logit model to investigate how fluctuations in COE quota premiums affect the monthly market share of each major car make in vehicle categories A (?1600CC) and B (>1600CC) separately, from January 2003 to July 2011. While controlling for product innovation and fuel cost movements, the statistical analyses for both vehicle categories endorse the hypothesis that, in accordance with Weber-Fechner’s Law, rising COE prices result in market share gains for premium car brands whose products are more expensive and may be deemed to be of superior quality. Furthermore, since hybrid models cost more than their petrol-driven equivalents, it is reasonable to extend the above-mentioned hypothesis to the petrol-electric hybrid car segment and postulate that higher real COE prices will increase the monthly sales ratio of Toyota hybrids to the total number of Toyota cars transacted in Category B. Indeed, the results reveal that real COE price is a significant factor that influences prospective Toyota car buyers to opt for hybrids instead of the petrol motors. Subsequently, the relationship between COE prices and monthly product share of hybrid car models is also explored. A widely held opinion is that buyers of hybrid cars are more concerned with the long-term fuel consumption costs and their choice between different hybrids may be less affected by changes in COE premiums. This widespread belief is supported by findings show that fuel cost is a more significant predictor of the monthly product share of Toyota hybrid models, as compared to the effect of COE price levels.