Introduction

In March 1981, the Japanese government agreed to US demands for limits on the exports of Japanese passenger cars to the United States. Domestically, proponents embraced the Japanese-US. Voluntary Export Restraint (VER) as a policy instrument which would stabilize profits and employment in the automobile industry. The VER's effect on equilibrium prices and quantities and thus on consumer and producer surplus is, in part, the result of its influence on competition in the targeted industry. The pre-VER period runs from the first quarter of 1973 to the first quarter of 1981, while the VER period runs from the second quarter of 1981 to the fourth quarter of 1986. The degree to which consumers perceive Japanese cars and US cars as substitutes should be reflected in the model's estimates of price flexibility and of demand elasticities. Finally, this chapter also provides an overview of the key concepts discussed in this book.