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Estimating the Effect of Salience in Wholesale and Retail Car Markets

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  • Meghan R. Busse
  • Nicola Lacetera
  • Devin G. Pope
  • Jorge Silva-Risso
  • Justin R. Sydnor

Abstract

We investigate whether the first digit of an odometer reading is more salient to consumers than subsequent digits. We find that retail transaction prices and volumes of used vehicles drop discontinuously at 10,000-mile odometer thresholds, echoing effects found in the wholesale market by Lacetera, Pope and Sydnor (2012). Our results reveal that retail consumers devote limited attention to evaluating vehicle mileage, and that this drives effects in the wholesale market. We estimate the inattention parameter implied by the price discontinuities. In addition, our results suggest that estimating consumer-level structural parameters using data from an intermediate market can give misleading results.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 3 (May)
Pages: 575-79

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:575-79

Note: DOI: 10.1257/aer.103.3.575
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  1. Justin R. Sydnor & Devin G. Pope & Nicola Lacetera, 2011. "Heuristic Thinking and Limited Attention in the Car Market," 2011 Meeting Papers 105, Society for Economic Dynamics.
  2. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-72, June.
  3. Meghan Busse & Jorge Silva-Risso & Florian Zettelmeyer, 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions," American Economic Review, American Economic Association, vol. 96(4), pages 1253-1270, September.
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