To What Extent Do the Non-Price Determinants of Demand Explain the Us Having Lower Porsche Prices Than Germany?

To what extent do the non-price determinants of demand explain the US having lower Porsche prices than Germany?

 Abstract                                                                                                                                                             This essay attempts to answer the question “To what extent do the non-price determinants of demand explain the US having lower Porsche prices than Germany?” Therefore, first of all an extensive comparison between the US and German market, price and sales wise, needed to be completed. Furthermore, the main features of the non-price of determinants of demand, in this case income, tastes and preferences, availability of substitute goods and size of the population were investigated to help answer this question. Other factors also had to be analyzed for a proper evaluation.

        Further primary research was also carried out in the form of an interview with six different Porsche owners in the US. Each of the interviewees was asked three different questions to help answer the research question. These interviews provided further insight into what makes actual owners buy a Porsche, what their opinion was on the US market and what their opinion was on the German market. As the prices ultimately affect the consumer, this primary research through interviews subsequently was a big guidance in answering the research question. Secondary research was carried out in the form of Internet websites, but also the economics Textbooks.  

        In conclusion, the purpose of this essay is to explain how the lower Porsche prices in the US can be justified by looking at the non-price determinants of demand, and by applying other economic concepts to the issue addressed in this essay. The major non-price determinants of demand will be linked to this problem to create a proper evaluation and analysis of the research question.       Word Count: 263 

Table of Contents

Introduction        4

Methodology        5

Background Information        6

Porsche Prices in the USA vs. Germany:        6

Interviewing Porsche Drivers in the US        13

How the major non-price determinants of Demand explain the lower prices in the US.        15

Income        15

Tastes and Preferences        17

The price of substitute goods        17

Population        20

Other Factors that can help explain the low Porsche Prices in the USA        21

Taxation        21

Purchasing Power Parity        24

Conclusion        25

Work Cited        27

Appendix 1: Interview with Porsche Drivers in the US        29

Appendix 2: List of 2016 Porsche Prices in Germany and the US in 2016        32

Appendix 3: Worldwide Porsche Sales in the Year 2014        34

Introduction

        Porsche is a German automotive company, which was created on April the 25th in the year 1931. Porsche is one of the most well known sports car manufactures and is known globally for excellent quality, timeless styling and for a superb driving experience, making them an incomparable driving machine for the automotive enthusiast. The company is now owned by the Volkswagen group, employs 19,446 employees and has sold 189,849 units worldwide, alone in 2014, making 17.2 billion euros in profits. (“The Gary Stock Company + Porsche Cars North America”) These numbers grow every year.

        When looking at these numbers, there is no doubt to say that Porsche is doing very well on a global level, especially as they have recently opened a new headquarter in Atlanta, Georgia, to expand their US market (“Jason Siu”). And exactly the US market is what brings me to the question I am trying to answer. Even though Porsche is a German Automotive manufacturer, the car prices are significantly lower overseas in the US, than here in Germany and this is not due to inferior quality, but due to something else.  The exact same car is sold in the US than in Germany (only some small changes to make cars road legal, such as a different colored indicator, which do not change the car or the value of the car at all), but at a much lower price, forcing German motoring enthusiasts to pay more for their passion. So what exactly justifies this low price, even though you get the exact same product for your money? After doing some preliminary research the assumption had been made that his price difference might be due to the non-price determinants of demand, which presented the research question “To what extent do the non-price determinants of demand explain the lower Porsche prices in the USA than in Germany?”

        In the duration of this essay, the belief that the prices are much lower in the USA than in Germany due to the non-price determinants of demand will be supported. Other aspects of why prices could be lower will also be evaluated.

Methodology

        Through the assessment of the extent of how the non-price determinants of demand explain the low Porsche Prices in the US, the non-price determinants of demand will have to be studied. Furthermore, there will have to be a very extensive study of the US and also the German conducted. These non-price determinants of demand will then be applied to this situation of the US having lower Porsche prices than Germany, to justify these low prices. In addition to this, other factors such as the role of taxation and the role of PPF will have to be taken into account to ensure an adequate evaluation.