Advanced Search
MyIDEAS: Login to save this paper or follow this series

Cowboys or Cowards: Why are Internet Car Prices Lower?

Contents:

Author Info

  • Florian Zettelmeyer
  • Fiona Scott Morton
  • Jorge Silva-Risso
Registered author(s):

    Abstract

    This paper addresses the question of how much the Internet lowers prices for new cars and why. Using a large dataset of transaction prices for new automobiles and referral data from Autobytel.com, we find that online consumers pay on average 1.2% less than do offline consumers. After controlling for selection, we find that using Autobytel.com reduces the price a consumer pays by approximately 2.2%. This suggests that consumers who use an Internet referral service are not those who would have obtained a low price even in the absence of the Internet. Instead, our finding is consistent with consumers choosing to use Autobytel.com because they know that they would do poorly in the traditional channel, perhaps because they have a high personal cost to collecting information and bargaining. This group disproportionately uses Autobytel.com because its members are the ones with the most to gain. We estimate that savings to consumers who use Autobytel.com alone are at least $240 million per year. Since there are other referral and informational sites that may also help consumers bargain more effectively with dealers, we conclude that the Internet is facilitating a large transfer of surplus to Internet consumers in the retail auto industry.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.nber.org/papers/w8667.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8667.

    as in new window
    Length:
    Date of creation: Dec 2001
    Date of revision:
    Handle: RePEc:nbr:nberwo:8667

    Note: IO
    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Joshua D. Angrist, 2000. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0248, National Bureau of Economic Research, Inc.
    2. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 977-1009, October.
    3. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, Econometric Society, vol. 46(4), pages 931-59, July.
    4. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
    5. Yuxin Chen & Ganesh Iyer & V. Padmanabhan, 2002. "Referral Infomediaries," Marketing Science, INFORMS, INFORMS, vol. 21(4), pages 412-434, May.
    6. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(3), pages 481-507, June.
    7. Ganesh Iyer & Amit Pazgal, 2003. "Internet Shopping Agents: Virtual Co-Location and Competition," Marketing Science, INFORMS, INFORMS, vol. 22(1), pages 85-106, November.
    8. Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 501-19, December.
    9. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, National Bureau of Economic Research, Inc, in: E-commerce, pages 501-519 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Anindya Ghose & Tridas Mukhopadhyay & Uday Rajan, 2003. "Strategic Benefits of Referral Services," Review of Marketing Science Working Papers, Berkeley Electronic Press 2-2-1022, Berkeley Electronic Press.
    2. Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, Elsevier, vol. 56(1), pages 121-134, July.
    3. George Hall & Adam Copeland & Wendy Dunn, 2005. "Prices, Production, and Inventories Over the Automotive Model Year," 2005 Meeting Papers, Society for Economic Dynamics 346, Society for Economic Dynamics.
    4. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Consumer Information and Price Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," NBER Working Papers 8668, National Bureau of Economic Research, Inc.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8667. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.