Internet Car Retailing

Abstract

We investigate the e¡ect of Internet car referral services on dealer pricing of automobiles in California. Customers of an online service pay on average 2% less for their car (6450 for the average car). 25% of the savings come from purchasing at low-price dealerships a¤liated with the online service. The remaining 75% stem from information provision by the online service, bargaining by the service on behalf of consumers, and cost e¤ciencies. A consumer receiving the mean online price does better than 65% of o¥ine consumers, conditional on the car being purchased.

Comparison Friction: Experimental Evidence from Medicare Drug Plans

“…(For example, see Brynjolfsson and Smith, 2000; Scott Morton, Zettelmeyer and Silva-Risso, 2001; Brown and Goolsbee, 2002; and Ellison and Ellison, 2009.) Hastings and Weinstein (2008), in a study of school choice where government plays a major role, found parents were more likely to choose a school with higher average test scores after receiving difficult to gather publicly available information about school scores.…”

Sales Technologies, Sales Force Management, and Online Infomediaries

“…This information can then be sold to automobile retailers as valuable sales leads, usually through a subscription model covering a specific geographic region (Chen, Iyer, and Padmanabhan 2002). Past research has suggested that customers purchasing through infomediaries obtain a discount when compared with offline customers (Morton, Zettelmeyer, and Silva-Risso 2001). In addition, Viswanathan et al (2007) found that the extent of the discount is dependent on the type of infomediary visited, with customers of price infomediaries paying the least and product infomediaries paying more.…”

“…The channel profit shown in Equation (2) is a simplification of the overall profit related to the use of the infomediary channel by the retailer. Sellers often discount prices in online channels (Morton, Zettelmeyer, and Silva-Risso 2001), and as a result, maximizing profitability involves incorporating an understanding of the degree to which new sales channels cannibalize sales in the existing channels (Geyskens, Gielens, and Dekimpe 2002). However, in a fluctuating sales environment in which the total lead-based sales are relatively low, sellers are likely to take a myopic view of management of the channel.…”

“…If members of the sales force are expected to handle customers entering the dealership along with online leads, they are likely to spend their time on the individuals they perceive to offer the best return. Given the lower profit associated with the online channel (Morton, Zettelmeyer, and Silva-Risso 2001), it is likely that leads from infomediaries would not be preferable to leads further in the sales process-that is, those individuals walking into the retail location. This may also be influenced by individual preferences, as individuals not hired specifically with technology-based skills may selectively prefer offline interactions.…”

“…In addition, a number of past researchers have reported the price differences between Internet and traditional channels (e.g., Morton, Zettelmeyer, and Silva-Risso 2001). Salespeople, similarly, are likely to show preferences for customers that yield the highest commission payment.…”