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Winter 2002 CalBusiness  
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Minorities Benefit from Buying Vehicles on Internet, Marketing Study Shows

A recent study by assistant marketing professor Florian Zettelmeyer and Fiona Scott Morton of Yale's School of Management found that the Internet serves as an equalizer for those whose demographic characteristics might end up costing them at a car dealership - primarily African-Americans, Hispanics, and women.

The study, titled "Consumer Information and Price Discrimination," used car purchase data provided by J.D. Power and Internet usage data by Autobytel.com.

The researchers found that minority buyers pay about two percent more than white consumers (or about $500 on the average car); however, most of this premium is due to differing income, education, and search costs. This might be expected because car prices are negotiated and socio-economic characteristics can influence the bargaining skills of consumers. For example, people who come from neighborhoods with a higher percentage of college-educated residents were found to pay lower prices at the dealership than the average consumer. Women pay a very small amount more, 0.2 percent (about $45 on the average car), than men pay on average.

The researchers found no evidence that minorities or women dislike bargaining or shop at more expensive dealerships. Rather, they concluded that the cost of searching for a good price on a car is higher, on average, for minority consumers. Lower levels of income and education, on average, mean minorities are not as successful in negotiating low prices. In addition, another study by Manning and Winston (1991) reported that minorities are less likely to own a car while shopping for a new car; this makes comparison shopping more difficult and therefore raises the average price minorities pay.

Shopping on the Internet eliminates the factors that raise the cost of car shopping for women and minorities, according to the study. Data from the referral service Autobytel.com showed that minorities paid the same prices as non-minorities, regardless of their level of education, income, and search costs. The study did not reveal any evidence of statistical race discrimination.

Said Zettelmeyer, "African-American and Hispanic consumers, who are least likely to use the Internet, are the ones who benefit the most from it."

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Florian Zettelmeyer
Florian Zettelmeyer
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