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Internet Car Retailing

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  • Fiona Scott Morton
  • Florian Zettelmeyer
  • Jorge Silva Risso
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    Abstract

    This paper investigates the effect of Internet car referral services on dealer pricing of automobiles in California. Combining data from J.D. Power and Associates and Autobytel.com, a major online auto referral service, we compare online transaction prices to regular street' prices. We find that the average customer of this online service pays approximately 2% less for her car, which corresponds to about $450 for the average car. Fifteen percent of the savings comes from making the purchase at a low-price dealership affiliated with the web service. The remaining 85% of the savings seem to be due to the bargaining power of the referral service and the lower cost of serving an online consumer. Dealer price dispersion declines with online sales, indicating we are picking up more than a selection effect. Online consumers who indicate they are ready to buy in the next two days pay even lower prices. Dealers pay less for an online customer's trade-in vehicle, although on-line customers are still better off overall than offline customers. Dealer average gross margin on an online vehicle sale is lower by about $300 than an equivalent offline sale. However, because online consumers are cheaper to serve and online sales may be new business for the dealerships, web-affiliated dealers are likely to be better off. Consumers who use the web do better than at least 61% of offline consumers.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7961.

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    Date of creation: Oct 2000
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    Publication status: published as Scott Morton, Fiona, Florian Zettelmeyer, and Jorge Silva-Risso. “Internet Car Retailing." The Journal of Industrial Economics 49, 4 (2001): 501-519.
    Handle: RePEc:nbr:nberwo:7961

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    1. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
    2. Pashigian, B Peter & Bowen, Brian & Gould, Eric, 1995. "Fashion, Styling, and the Within-Season Decline in Automobile Prices," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 281-309, October.
    3. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    4. Dennis W. Carlton & Judith A. Chevalier, 2001. "Free Riding and Sales Strategies for the Internet," NBER Working Papers 8067, National Bureau of Economic Research, Inc.
    5. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-21, June.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
    7. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    8. Jeffrey R. Brown & Austan Goolsbee, 2000. "Does the Internet Make Markets More Competitive?," NBER Working Papers 7996, National Bureau of Economic Research, Inc.
    9. Goldberg, Pinelopi Koujianou, 1996. "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 622-54, June.
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    Cited by:
    1. Mark V. Pauly & Bradley Herring & David Song, 2002. "Health Insurance on the Internet and the Economics of Search," NBER Working Papers 9299, National Bureau of Economic Research, Inc.
    2. Friberg, Richard & Ganslandt, Mattias & Sandström, Mikael, 2001. "Pricing Strategies in E-Commerce: Bricks vs. Clicks," Working Paper Series 559, Research Institute of Industrial Economics.
    3. Fairlie, Robert W., 2005. "The effects of home computers on school enrollment," Economics of Education Review, Elsevier, vol. 24(5), pages 533-547, October.
    4. Severin Borenstein & Garth Saloner, 2001. "Economics and Electronic Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 3-12, Winter.
    5. Myung-Soo Lee & Brian Ratchford & Debrabrata Talukdar, 2001. "The Impact of the Internet on Information Search for Automobiles," Review of Marketing Science Working Papers 1-2-1011, Berkeley Electronic Press.
    6. Forman, Christopher, 2002. "The Corporate Digital Divide: Determinants of Internet Adoption," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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