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Dealer Price Discrimination in New Car Purchases Evidence from the Consumer Expenditure Survey Andreas Argyris.

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Presentation on theme: "Dealer Price Discrimination in New Car Purchases Evidence from the Consumer Expenditure Survey Andreas Argyris."— Presentation transcript:

1 Dealer Price Discrimination in New Car Purchases Evidence from the Consumer Expenditure Survey Andreas Argyris

2 Previous Studies »1985, Bresnahan & Reiss- product lines responsible for dealer mark- ups; no difference in treatment of individual buyer »1995, Ayres &Siegelman- race, gender causes differences

3 Ayres & Siegelman »Initial offers higher: $200 for white women, $450 for black women, $1100 for black men »Similar differences for final price »Controlled experiment- testers in Chicago

4 Pinelopi Goldberg »Uses micro data on actual purchases and transaction prices of new cars »Data from Consumer Expenditure Survey (CES)

5 CES Information »Large set of household characteristics, stock of owned vehicles, trade-in, financing. »Control for different backgrounds, financial ability, previous car buying experience

6 Reasons for Different Results »In experiment, buyers have different demand behaviors, dealers adjust appropriately »If reservation price is high, final price will also be high

7 Equation »On the board »Discount=-Markup + (list price- wholesale price) »Higher discounts=lower markups »Last term is not dependent on consumer attributes- taken from Consumer Reports

8 Some info problems »Inaccurate model information and purchase of additional options »Trade-in allowance »Sales tax »Financing »Dealer-specific costs (destination fees, dealer prep fees…)

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12 Results »If final prices not related to household characteristics, why negotiate? »Because of variance in discounts- profit maximizing strategy for dealers

13 More Results


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