Internet Car Retailing

30 Pages Posted: 11 Dec 2000

See all articles by Fiona M. Scott Morton

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Florian Zettelmeyer

University of California, Berkeley - Marketing Group; National Bureau of Economic Research (NBER)

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 2001

Abstract

This paper investigates the effect of Internet car referral services on dealer pricing of automobiles in California. Combining data from J.D. Power and Associates and Autobytel.com, a major online auto referral service, we compare online transaction prices to regular "street" prices. We find that the average customer of this online service pays approximately 2% less for her car, which corresponds to about $450 for the average car. About 25% percent of the savings comes from making the purchase at a low-price dealership affiliated with the web service. The remaining 75% of the savings are due to a combination of information provision by the referral service, bargaining by the service on behalf of consumers, and cost efficiencies. Dealer price dispersion declines with online sales, indicating we are picking up more than a selection effect. Online consumers who indicate they are ready to buy in the next two days pay even lower prices. Dealers pay less for an online customer's trade-in vehicle, although on-line customers are still better off overall than offline customers. Dealer average gross margin on an online vehicle sale is lower than an equivalent offline sale. However, because online consumers may be cheaper to serve and online sales are likely to be new business for the dealerships, dealers may gain in absolute terms from web affiliation. Consumers who use the web pay less than at least 61% of offline consumers, conditional on the car being purchased.

Keywords: Internet, car, auto, e-commerce, disintermediation

JEL Classification: L1, L2, L8

Suggested Citation

Scott Morton, Fiona M. and Zettelmeyer, Florian and Silva-Risso, Jorge M., Internet Car Retailing (February 2001). Available at SSRN: https://ssrn.com/abstract=248318 or http://dx.doi.org/10.2139/ssrn.248318

Fiona M. Scott Morton (Contact Author)

Yale School of Management ( email )

493 College St
New Haven, CT CT 06520
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Florian Zettelmeyer

University of California, Berkeley - Marketing Group ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-643-1898 (Phone)
510-643-1420 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jorge M. Silva-Risso

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States