Gasoline Prices and the American Auto Industry: Repeated Environmental Shocks in a Unique Framework

Organizational theory suggests organizations may incorporate lessons learned from past experiences into

current behaviors and strategies, but not all lessons are integrated equally. We investigate the actions of

the American automakers to repeated external shocks in the form of sharp gasoline price increases

during the periods of 1973-1974 and 1978-1980 in an attempt to distinguish reactions to these stimuli

from reactions to other environmental factors. We find that firms display a quick response to the initial

oil shock and respond faster to the subsequent shock and that the auto manufacturers’ product mix is

highly correlated with the price of gasoline