An empirical study on COE hike and luxury car boom in Singapore.

Abstract

This paper examines the recent trend of increasing demand for luxury cars in Singapore, which coincides and seems to be caused by the increase in Certificate of Entitlement (COE) prices. General observations have been made as a passing remark by academia but no concrete research has thus been done to examine the robustness of the relation between COE and luxury car demand. A Pooled Ordinary Least Square Regression Model, Double-Log Model as well hedonic pricing model in a form of Fixed Effect – Least Square Dummy Variable are constructed to examine the constituent of demand for cars in two different market segments, namely Luxury and Mass Market. It is found out that purchasing behavior in the two market segments differ and that COE might not play a significant role in determining the demand for cars in most cases of both market segment. Rather, conventional market mechanics like income and interest rate persisted to be the strongest explanatory variable for the fluctuations in demand. The paper concludes with an application of behavioral economics on anchoring and dynamic inconsistent preferences as well as possible extensions.