What Drives Home Market Advantage?

Abstract

In the automobile industry, as in many tradable goods markets, firms earn their highest market share within their domestic market. This home market advantage persists despite substantial integration of international markets during the past several decades. The goal of this paper is to quantify the supply-and demand-driven sources of the home market advantage and to understand their implications for international trade and investment. Building on the random coefficients demand model developed by Berry, Levinsohn, and Pakes (1995), we estimate demand and supply in the automobile industry for nine countries across three continents, allowing for unobserved taste and cost variation at the car model and market levels. While trade and foreign production costs as well as taste heterogeneity matter for market outcomes, we find that preference for domestic brands is the single most important driver of home market advantage -even after controlling for brand histories and dealer networks. A. Kerem Coşar

Positioning Nigeria’s manufacturing and agricultural sectors for global competitiveness

“…Inclusive among initiatives that can take the Nigerian manufacturing sector toward greater heights, make it a more viable investment destination, and thereby establish a reputation that could be globally reckoned with, are the expectations from firms constituting the sector to (a) meet domestic‐demand preferences (AFDB, OECD and UNDP, ; Bakht and Bhattacharya, ; Cosar et al, ; Ogbechie, ; Ogwuma, ) (b) deliver quality trademarks (Bakht and Bhattacharya, ; Inegbenebor, ; Ogbechie, , ), and (c) foster satellite‐industries growth (Bakht and Bhattacharya, ; Ogbechie, ; Ogwuma, ) (Figure ).…”

“…First is meeting the demand preferences of the majority of the populace who are at the bottom of the income pyramid (AFDB et al, ; Bakht and Bhattacharya, ; Cosar et al, ; Ogbechie, ; Ogwuma, ). Here, a need‐fulfilling firm from minute but frequent purchases by her customers would realize huge sales turnover for many reasons including affordability, which as a pricing strategy can be brought to bear when economies of scale are attained due to mass production .…”

“…Consequently, as the manufacturing and agricultural subsectors comprise an economy's real sector, it is no gain saying that these subsectors are expected to offer quality products that meet the needs of the citizenry and unavoidably with a pricing strategy that would serve as an incentive for purchase and as means to compete for market share. Businesses, therefore, are duly faced with the expectation to produce efficiently (or innovatively) and seek improved market share for continued production (Cosar, Grieco, Li, & Tintelnot, ; Dornfeld, ). Hence in this case, emphasis would be that so long as the Nigerian manufacturing and agricultural subsectors can to a greater degree meet local demand with quality and affordable products, they could also be well positioned, that is of capacity, to have (same) products compete globally as a testament of value contribution and as an evidence of increased market share (Fuchs & Diamantopoulos, ; Kotler, ).…”

“…Whether export‐promotion or import‐substitution, an appropriate trade orientation which concerns Nigeria, as this research focuses on strategies that can enhance efforts prevalent among industry stakeholders and the government to foster real sector contribution for national development, thus would be adopting the trade strategy that promotes the country's brand. As Helpman and Krugman (), Esfahani (), Giles and Williams () and Lundvall () attest, with an emphasis on economies' peculiarities, however, that export‐promotion is suited for economies that cannot attract foreign capital inflows and that seek to explore the global market, for Nigeria in this case and as proposed even by the previous and present federal governments import‐substitution amidst varied interpretations would be to produce innovatively with local sources to meet domestic demand (Auer, ; Cosar et al, ; Krugman, ) and not at this phase of the country's industrialization path to mean competing with foreign substitutes. Such is the gap the agricultural and manufacturing sectors in Nigeria are to be encouraged to fill, and specific interest is to carve a niche through leverage on economies of scale and utilizing domestic endowments, among others.…”

Efficient tax competition under the origin principle

“…In general, the academic literature assumes that consumers differ according to a home bias due to mobility or transaction costs when shopping abroad. There is indeed empirical evidence to support such a kind of bias (recent studies include Ellison & Ellison, ; Cosar, Grieco, & Tintelnot, ). However, one may think of cases where this bias is less likely to arise, and instead a “country‐of‐origin” effect should operate (Riefler & Diamantopoulos, ).…”