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http://papers.nber.org/papers/W8668
Consumer Information and Price Discrimination: Does the Internet Affect the
Pricing of New Cars to Women and Minorities?
Fiona Scott Morton, Florian
Zettelmeyer, Jorge Silva-Risso
NBER Working Paper No.w8668
Issued in
December 2001
---- 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 affects equilibrium prices 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 other
consumers, however, we can explain 65% of this price premium with differences
in income, education,a nd 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. 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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