MARKET STRUCTURE AND PRICING STRATEGY OF CHINA'S AUTOMOBILE INDUSTRY*

In this study, using market-level data on quantities, prices' and automobile characteristics from 1995 to 2001, we conduct a market analysis of the Chinese automobile industry under imperfect competition. On the demand side, we apply a nested multinomial logit model to the national market share data in order to ascertain the demand features of China's automobile market. On the supply side, we assume Bertrand behavior to uncover the markups set by automobile manufacturers. Our empirical results suggest that some large automobile manufacturers set high markups, indicating their strong market power in China's automobile market. However, their declining markups in the late 1990's imply a reduction in market control by the major producers.