Scott Morton on Internet Pricing

A customer walks into a car dealership determined to get the best price possible. In the past, one could shop multiple dealers, read industry magazines, and haggle for each penny. But the internet allows buyers to arm themselves with a much greater array of information.

Fiona Scott Morton, professor of economics, decided along with two co-authors to see if the advent of the internet has changed the balance of power between buyer and dealer, and whether that resulted in any significant savings. They found that people who spend time online before buying paid on average 2% less than those who didn’t. The reason, says Scott Morton, came down to one important piece of information: invoice price. "It’s a very important negotiating tool to know what the dealer paid for the car," she says, adding that this information helped close the gap between the prices paid by women and minorities and those paid by white men.