Does the Internet Affect the Pricing of New Cars for Women and Minorities?
New Haven, CT, December 6, 2001 -- "YES." A recent study by researchers at Berkeley and Yale found that the Internet is disproportionately beneficial to those whose demographics put them at a disadvantage in negotiating -- primarily African-Americans, Hispanics, and women.
The study, "Consumer Information and Price Discrimination," was conducted by Fiona Scott Morton, economics professor at Yale University's School of Management, and Florian Zettelmeyer, marketing professor at the University of California, Berkeley's Haas School of Business, in collaboration with Jorge Silva-Risso from J.D. Power and Associates. Transaction data was provided by J.D. Power, referral data by Autobytel.com.
Their research revealed that the Internet serves as an equalizer for those whose demographic characteristics might end up costing them at a car dealership. For example, more highly educated people were found to pay lower prices at the dealership than the average consumer. This might be expected because car prices are negotiated and bargaining skills vary across consumers. At the same time, African-American and Hispanic consumers pay approximately 2% more, or about $500 on the average car, than white consumers. Women pay 0.2% (about $45 on the average car) more at the dealership than men pay on average.
The researchers found no evidence that minorities, or women, dislike bargaining or that they shop at more expensive dealerships. Instead, they were able to explain a substantial part of the race premium by socio-economic factors such as education, income and search costs. Minorities tend to have lower incomes, tend to have lower education levels, and fewer of them tend to own a car already, which makes collecting information and comparison-shopping difficult. The study did not reveal any evidence of statistical race discrimination.
On the other hand, shopping on the Internet, the researchers found, eliminates the factors that raise the cost of car shopping for women and minorities. The referral service used for this study, Autobytel.com, showed that minorities paid the same prices as non-minorities, regardless of their level of education, income, and search costs.
"The study shows an additional aspect of the Digital Divide," says Berkeley's Zettelmeyer. "Not only are disadvantaged minorities less likely to use the Internet, but they are also the group that would most benefit from it."
Haas School of Business, UC Berkeley
Yale School of Management