FUEL FOR THOUGHT: EFFECT OF GASOLINE PRICES ON VEHICLE DEMAND

Abstract

This paper investigates the effect of fuel prices on market shares of vehicles by region of origin, vehicle-types and fuel-types in the new car market in Singapore. Using monthly sales data from January 2015 to June 2018, I find that when petrol prices increase, market shares for American-make cars increase, while coupes and vehicles of alternative engine types (mainly comprising hybrid and electric cars) fall. When diesel prices increase, market shares for American-make cars decrease, while other market shares are not significantly affected. The revision of the emissions scheme in July 2015 increased shares for MPVs and SUVs significantly, while the diesel tax of February 2017 significantly increased shares for vehicles of alternative engine types. The revision of the vehicle emissions scheme to include more pollutants significantly decreased shares of diesel cars in the market. The Volkswagen scandal was also found to decrease market shares of diesel cars momentarily.