Nexus of fuel consumption, car features and car prices: Evidence from major institutions in Ibadan

• Published in: Renewable & sustainable energy reviews 2016-06, Vol.59, p.1220-1228
• Main Authors: Arawomo, Damilola F., Osigwe, Augustine C.
• Format: Article
• Language: English
• Subjects: Car prices; Crashworthiness; Determinants; Fuel consumption; Fuel economy; Fuels; Hedonic price model and car features; Markets; Mathematical models; Pricing; Purchasing
• ISSN: 1364-0321; 1879-0690
• DOI: 10.1016/j.rser.2016.01.036

This study examined the nexus of fuel consumption, car characteristics and prices in Ibadan. It also ascertained whether car buyers undervalue fuel savings. A sample of 600 car owners drawn from the six major institutions in Ibadan was used. In addition to the descriptive analysis, the hedonic car price function was estimated using OLS and IV estimation techniques. The result of the IV estimations were preferred and interpreted. Empirical findings indicated that respondents do not undervalue fuel savings. More explicitly, 98.8% of the respondents indicated that they would pay additional naira to buy fuel efficient car, if the additional naira is less than the present value of extra future cost of fuel for an inefficient car. Moreover, when asked to rank the factors considered important when purchasing a car, fuel consumption ranked third. The estimated hedonic price model indicated that the impact of fuel consumption on car price was significantly negative, implying that the respondents were willing to pay less for a fuel inefficient car. Moreover, the security and luxury car features were found to increase the price of cars. The study recommended that advocacy and orientations be carried out by the stakeholders in the car market to deepen users and potential buyers’ understanding on car price determinants.