Online Infomediaries and Price Discrimination: Evidence from the Auto-Retailing Sector

Abstract

This paper focuses on a novel mechanism for market segmentation and price discrimination based on consumers' use of online infomediaries. Using the auto-retailing context as the setting for our study we address the following question: Can online infomediaries serve as a viable mechanism for market segmentation and price discrimination for traditional dealers and manufacturers? We draw upon a unique and extensive dataset of consumers who report on their information retrieval patterns as well as their online buying services (OBS) usage patterns in their new vehicle purchase process. The analysis of information retrieval patterns shows that consumers who obtain price information pay lower prices (for the same vehicle) compared to consumers who obtain product information. While this points to the existence of consumer segments with significantly different willingness-to-pay for the same product, this knowledge is of limited value without a viable mechanism that enables firms to specifically identify and target these customer-segments. Based on consumer usage patterns of OBSs, we then uncover distinct OBS clusters and empirically demonstrate that the usage of these different clusters is associated with predicted differences in consumer outcomes. We also show that the differential use of online infomediaries (OBS clusters) is systematically related to underlying consumer characteristics. We discuss the relevance of our findings for auto-dealers and manufacturers as well as for other industries where online infomediaries have established a significant presence.

Keywords: Online Intermediaries, E-Commerce, Price Discrimination, Internet Retailing, Infomediaries

JEL Classification: B21, C31, C72, D83, J71, O33