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Internet Car Retailing

Author

Listed:
  • Fiona Scott Morton
  • Florian Zettelmeyer
  • Jorge Silva Risso

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.

Suggested Citation

  • Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva Risso, 2000. "Internet Car Retailing," NBER Working Papers 7961, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7961
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    References listed on IDEAS

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    Cited by:

    1. Christopher Forman, 2002. "The Corporate Digital Divide: Determinants of Internet Adoption," WIDER Working Paper Series DP2002-89, World Institute for Development Economic Research (UNU-WIDER).
    2. Fairlie, Robert W., 2005. "The effects of home computers on school enrollment," Economics of Education Review, Elsevier, vol. 24(5), pages 533-547, October.
    3. James V. Koch & Richard J. Cebula, 2002. "Price, Quality, And Service On The Internet: Sense And Nonsense," Contemporary Economic Policy, Western Economic Association International, vol. 20(1), pages 25-37, January.
    4. Fairlie Robert W, 2004. "Race and the Digital Divide," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-40, September.
    5. Severin Borenstein & Garth Saloner, 2001. "Economics and Electronic Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 3-12, Winter.
    6. 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.
    7. 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.
    8. Friberg, Richard & Ganslandt, Mattias & Sandström, Mikael, 2001. "Pricing Strategies in E-Commerce: Bricks vs. Clicks," Working Paper Series 559, Research Institute of Industrial Economics.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services

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