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Dealer Price Discrimination in New Car Purchases Evidence from the Consumer Expenditure Survey Andreas Argyris
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
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
Pinelopi Goldberg »Uses micro data on actual purchases and transaction prices of new cars »Data from Consumer Expenditure Survey (CES)
CES Information »Large set of household characteristics, stock of owned vehicles, trade-in, financing. »Control for different backgrounds, financial ability, previous car buying experience
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
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
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…)
Results »If final prices not related to household characteristics, why negotiate? »Because of variance in discounts- profit maximizing strategy for dealers
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