Automobile Prices in Market Equilibrium with Unobserved Price Discrimination

Abstract

In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This article considers the structural estimation of a demand and supply model of differentiated products with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved not only with usual moment conditions on the demand side, but also through supply-side restrictions. The model can be estimated by GMM using a nested fixed point algorithm that extends the usual contraction mapping algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.

The Effects of Usury Ceilings on Consumers Welfare: Evidence from the Microcredit Market in Colombia

“…Here, I use similar methods to identify the share of consumers that gain access to credit from formal loan providers after the usury ceiling is relaxed. In addition, my empirical strategy takes elements from recent literature that estimates demand in the presence of unobserved price heterogeneity (D'Haultfoeuille et al, 2018;Huang, 2020, e. g.). I follow the approach by D' Haultfoeuille et al (2018), who propose a method for the structural estimation of a demand and supply model with price discrimination, where information on prices is limited and takes the form of, e.g., observing list prices from catalogs or average prices.…”

“…My approach combines elements from several studies that estimate demand in the context of limited attention (e.g. Abaluck and Adams, 2017;Ho et al, 2017;Hortaçsu et al, 2017;Abrams, 2019), and in the presence of unobserved price heterogeneity (D'Haultfoeuille et al, 2018). I combine moment conditions derived from the consumers' utility maximization and the lenders' optimal decision on interest rates, before and after the policy change, to identify changes in the price elasticity and the share of consumers with access to formal loans.…”

Who Loses when Prices are Negotiated? An Analysis of the New Car Market

“… However, Harless and Hoffer [] did find some evidence that older consumers pay more in negotiations, a finding that was recently repeated in the French automobile industry by D'Haultfoeuille et al [].…”

“…Langer [] examines the interaction between the gender and marital status of car buyers, but does not study age effects. D'Haultfoeuille et al [] study the new car market in France, using data on consumers’ age and expected income, but they lack information on gender.…”

“…Langer [2016] examines the interaction between the gender and marital status of car buyers, but does not study age effects. DHaultfoeuille et al [2014] study the new car market in France, using data on consumers age and expected income, but they lack information on gender. 7 Harding et al [2003] use the age of customers as a control in their study of housing transactions, but focus on gender in their analysis and do not study the interaction of age and gender.…”