How the internet lowers prices: Evidence from matched survey and automobile transaction data

Florian Zettelmeyer*, Fiona Scott Morton, Jorge Silva-Risso

*Corresponding author for this work

Research output: Contribution to journalArticle

113 Scopus citations

Abstract

Although research has shown that the Internet has lowered the prices in some established industries, little is known about how use of the Internet lowers prices. The authors address this issue for the automobile retailing industry with matched survey and transaction data on 1500 car purchases in California. They show that the Internet lowers prices for two distinct reasons: First, the Internet informs consumers about dealers' invoice prices. Second, the referral process of online buying services helps consumers obtain lower prices. The combined information and referral price effects are -1.5%, or 22% of dealers' average gross vehicle profit. The authors also find that the benefits of gathering information differ by consumer type. Buyers who have a high disutility of bargaining but who have collected information on the specific car they eventually purchase pay 1.5% less than they otherwise would. In contrast, buyers who like the bargaining process do not benefit from such information.

Original languageEnglish (US)
Pages (from-to)168-181
Number of pages14
JournalJournal of Marketing Research
Volume43
Issue number2
DOIs
StatePublished - May 2006

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Marketing

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