Intertemporal substitution and new car purchases

type="main"> <p>This article presents a dynamic demand model for motor vehicles. This approach accounts for the change in the mix of consumers over the model year and measures consumers' substitution patterns across products and time. I find intertemporal substitution is significant; consumers are more likely to change the timing of their purchase in reaction to a price increase rather than buy another vehicle in the same period. Further, I find automakers' use of large cash-back rebates at the end of the model year, although boosting overall sales, induces large numbers of consumers to delay their purchases and so pay lower prices.