Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions
AbstractThe Internet has introduced a variety of online buying services that expand the reach of sellers and reduce search costs for buyers. In markets in which traditional outlets establish prices through bargaining, these online intermediaries have also altered the price setting process. Perhaps the most well known example is Autobytel.com which provides referral services in the automobile market. By using Autobytel, a buyer can obtain a non-negotiable price offer as an alternative to bargaining with a car dealership. To understand the effect of online referral systems on the price setting process, we construct a theoretical model of oligopolistic price competition in which one dealership has an exclusive contract with a referral intermediary. We derive market conditions under which the fixed price offered through the referral system will or will not be lower than offline (bargained) prices. Our model provides theoretical insights relevant to results in the empirical literature addressing the role that Autobytel and other infomediaries play in online markets.
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Bibliographic InfoPaper provided by University of Delaware, Department of Economics in its series Working Papers with number 07-03.
Length: 33 pages
Date of creation: Jan 2007
Date of revision:
Publication status: Forthcoming in Review of Network Economics.
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Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
More information through EDIRC
online markets; E-commerce; intermediary; autobytel; pricing;
Other versions of this item:
- Arnold Michael A. & Pénard Thierry, 2007. "Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-27, June.
- D4 - Microeconomics - - Market Structure and Pricing
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
- L89 - Industrial Organization - - Industry Studies: Services - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-21 (All new papers)
- NEP-ICT-2007-04-21 (Information & Communication Technologies)
- NEP-MIC-2007-04-21 (Microeconomics)
- NEP-MKT-2007-04-21 (Marketing)
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