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Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions

  • Michael A. Arnold

    ()

    (Department of Economics,University of Delaware)

  • Thierry Pénard

    ()

    (Department of Economics,University of Rennes)

The 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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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2007/UDWP2007-03.pdf
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Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 07-03.

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Length: 33 pages
Date of creation: Jan 2007
Date of revision:
Publication status: Forthcoming in Review of Network Economics.
Handle: RePEc:dlw:wpaper:07-03.
Contact details of provider: Postal: Purnell Hall, Newark, Delaware 19716
Phone: (302) 831-2565
Fax: (302) 831-6968
Web page: http://www.lerner.udel.edu/departments/economics/department-economics/

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  1. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-57, July.
  2. Bester, H., 1993. "Price commitment in search markets," Discussion Paper 1993-9, Tilburg University, Center for Economic Research.
  3. Yuxin Chen & Ganesh Iyer & V. Padmanabhan, 2002. "Referral Infomediaries," Marketing Science, INFORMS, vol. 21(4), pages 412-434, May.
  4. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
  5. Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-19, December.
  6. Baye, Michael R. & Morgan, John, 2002. "Information gatekeepers and price discrimination on the internet," Economics Letters, Elsevier, vol. 76(1), pages 47-51, June.
  7. Min Ding & Jehoshua Eliashberg & Joel Huber & Ritesh Saini, 2005. "Emotional Bidders---An Analytical and Experimental Examination of Consumers' Behavior in a Priceline-Like Reverse Auction," Management Science, INFORMS, vol. 51(3), pages 352-364, March.
  8. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, in: E-commerce, pages 501-519 National Bureau of Economic Research, Inc.
  9. 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.
  10. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Chapters, in: E-commerce, pages 521-539 National Bureau of Economic Research, Inc.
  11. Anindya Ghose & Tridas Mukhopadhyay & Uday Rajan, 2003. "Strategic Benefits of Referral Services," Review of Marketing Science Working Papers 2-2-1022, Berkeley Electronic Press.
  12. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
  13. Scott Fay, 2004. "Partial-Repeat-Bidding in the Name-Your-Own-Price Channel," Marketing Science, INFORMS, vol. 23(3), pages 407-418, February.
  14. Fiona Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2003. "Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 65-92, March.
  15. Michael A. Arnold & Christine Saliba, 2003. "Price Dispersion in Online Markets: The Case of College Textbooks," Working Papers 03-02, University of Delaware, Department of Economics.
  16. repec:fth:harver:1517 is not listed on IDEAS
  17. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Persistent Price Dispersion in Online Markets," Chapters, in: The New Economy and Beyond, chapter 6 Edward Elgar.
  18. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
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