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Consumer Information and Price Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?

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Author Info

  • Florian Zettelmeyer

    ()
    (Marketing Group)

  • Fiona M. Scott Morton

    ()
    (School of Management)

  • Jorge Silva-Risso

    ()
    (Anderson School of Management)

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    Abstract

    Mediating transactions through the Internet removes important cues that salespeople can use to assess a consumer's willingness to pay. We analyze whether dealers' difficulty in identifying consumer characteristics on the Internet and consumers' ease in finding information affect race and gender discrimination in car retailing. Using a large dataset of transaction prices for new automobiles, the first part of the paper analyzes the relationship between car prices and demographics. We find that offline African-American and Hispanic consumers pay approximately 2% more than do other consumers; however, we can explain 65% of this price premium with differences in income, education, and search costs; we find no evidence of statistical race discrimination. The second part of the paper turns to the role of the Internet. Online minority buyers who use the Internet Referral Service we study, Autobytel.com, pay nearly the same prices as do whites, irrespective of their income, education, and search costs. Since members of minority groups who use the Internet may not be representative, we control for selection. The combination of our results suggests that price discrimination in car buying has a "disparate impact" on minorities and whites rather than being evidence of a "disparate treatment" of these groups. This is because Autobytel.com dealers are very likely to know an Internet consumer's race. We conclude that the Internet is disproportionately beneficial to those who have personal characteristics that put them at a disadvantage in negotiating. African-American and Hispanic individuals, who are least likely to use the Internet, are the ones who benefit the most from it.

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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm240.

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    Date of creation: 31 Oct 2001
    Date of revision:
    Handle: RePEc:ysm:somwrk:ysm240

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    Web page: http://icf.som.yale.edu/
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    Related research

    Keywords: Internet; Discrimination; Price Discrimination; Car; Auto; E-commerce;

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    Cited by:
    1. Hiroshi Ono & Madeline Zavodny, 2003. "Race, internet usage, and e-commerce," The Review of Black Political Economy, Springer, vol. 30(3), pages 7-22, December.
    2. Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 56(1), pages 121-134, July.
    3. Barbara L. Wolfe & Robert H. Haveman, 2002. "Social and nonmarket benefits from education in an advanced economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 47(Jun), pages 97-142.

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