Scarcity Rents in Car Retailing: Evidence from Inventory Fluctuations at Dealerships
Price variation for identical cars at the same dealership is commonly assumed to arise because dealers with market power are able to price discriminate among their customers. In this paper we show that while price discrimination may be one element of price variation, price variation also arises from inventory fluctuations. Inventory fluctuations create scarcity rents for cars that are in short supply. The price variation due to inventory fluctuations thus functions to efficiently allocate particular cars that are in restricted supply to those customers who value them most highly. Our empirical results show that a dealership moving from a situation of inventory shortage to an average inventory level lowers transaction prices by about 1% ceteris paribus, corresponding to 15% of dealers' average per vehicle profit margin or $250 on the average car. Shorter resupply times also decrease transaction prices for cars in high demand. For traditional dealerships, inventory explains 49% of the combined inventory and demographic components of the predicted price. For so-called 'no-haggle' dealerships, the percentage explained by inventory increases to 74%.
|Date of creation:||May 2006|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Timothy F. Bresnahan & Valerie A. Ramey, 1992.
"Output Fluctuations at the Plant Level,"
NBER Working Papers
4105, National Bureau of Economic Research, Inc.
- Jason D. Papastavrou & Srikanth Rajagopalan & Anton J. Kleywegt, 1996. "The Dynamic and Stochastic Knapsack Problem with Deadlines," Management Science, INFORMS, vol. 42(12), pages 1706-1718, December.
- D. W. Carlton, 1976.
"Market Behavior With Demand Uncertainty and Price Inflexibility,"
179, Massachusetts Institute of Technology (MIT), Department of Economics.
- Carlton, Dennis W, 1978. "Market Behavior with Demand Uncertainty and Price Inflexibility," American Economic Review, American Economic Association, vol. 68(4), pages 571-87, September.
- George Hall & Adam Copeland & Wendy Dunn, 2005.
"Prices, Production, and Inventories Over the Automotive Model Year,"
2005 Meeting Papers
346, Society for Economic Dynamics.
- Adam Copeland & Wendy E. Dunn & George J. Hall, 2005. "Prices, production, and inventories over the automotive model year," Finance and Economics Discussion Series 2005-25, Board of Governors of the Federal Reserve System (U.S.).
- Adam Copeland & Wendy Dunn & George Hall, 2005. "Prices, Production and Inventories over the Automotive Model Year," NBER Working Papers 11257, National Bureau of Economic Research, Inc.
- Copeland, Adam & Hall, George J., 2005. "Prices, Production and Inventories over the Automotive Model Year," Working Papers 2, Yale University, Department of Economics.
- James D. Dana, 2000.
"Competition in Price and Availability when Availability is Unobservable,"
Econometric Society World Congress 2000 Contributed Papers
1450, Econometric Society.
- Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
- Adam Copeland & George Hall, 2005.
"The Response of Prices, Sales, and Output to Temporary Changes in Demand,"
Cowles Foundation Discussion Papers
1543, Cowles Foundation for Research in Economics, Yale University.
- Adam Copeland & George Hall, 2011. "The response of prices, sales, and output to temporary changes in demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 232-269, March.
- Adam Copeland & George Hall, 2006. "The Response of Prices, Sales, and Output to Temporary Changes in Demand," 2006 Meeting Papers 39, Society for Economic Dynamics.
- Adam Copeland & George Hall, 2005. "The Response of Prices, Sales, and Output to Temporary Changes in Demand," NBER Working Papers 11870, National Bureau of Economic Research, Inc.
- Severin Borenstein & Nancy L. Rose, 1991.
"Competition and Price Dispersion in the U.S. Airline Industry,"
NBER Working Papers
3785, National Bureau of Economic Research, Inc.
- Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
- George Hall & John Rust, 1999.
"An Empirical Model of Inventory Investment by Durable Commodity Intermediaries,"
- Hall, George & Rust, John, 2000. "An empirical model of inventory investment by durable commodity intermediaries," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 171-214, June.
- George J. Hall & John Rust, 1999. "An Empirical Model of Inventory Investment by Durable Commodity Intermediaries," Cowles Foundation Discussion Papers 1228, Cowles Foundation for Research in Economics, Yale University.
- 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 (QME), Springer, vol. 1(1), pages 65-92, March.
- Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12177. 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 references are entirely missing, you can add them using this form.