Audi vs. BMW – On the Physical Heterogeneity of German Luxury Cars

摘要

This paper uses Logit and Probit regressions to test for and quantify the physical heterogeneitybetween German luxury cars. Using a matched sample database, the binary response variableconsisting of Audis and BMWs is fitted to a matrix of physical characteristics such as power,torque, fuel consumption, engine displacement etc. The results indicate that having a forcedinduction engine (e.g. turbo) is associated with a 51% lower probability of observing a BMW andthat increasing fuel consumption by 1 liter per 100km lowers the probability of observing a BMWwith 61%. The results are discussed in relation to the idea that consumers may not differentiateacross luxury products on the basis of physical characteristics and how this may introduce a biaswith respect to predicting demand in the context of available market data.