I have worked at velocity dealerships as a sales rep selling new and used cars, RVs and more. Price discrimination is the name of the game as is the prevention of arbitrage, which can often be confused by the customer as shady business practices by the dealership as "hiding" numbers and "showing" numbers becomes an art of illusion. While I completely agree that women and minorities do receive the worst initial offers; it's common for the sales force to observe the customers attire, car they drove in with, and we have gone as far as google mapping the location of the customers address in order to prepare a prospectus for that customer. An argument for another chapter could be made in regards to ethics and morale hazard; but for now we'll stay with price discrimination.
Before the worldwide web became the primary source for valuating new and used cars - the auto industry flourished up until the internet was able to provide customers with up to the minute objective valuations. It's common to hear an older salesman talk about the "good ol days" before the internet - when price discrimination was much easier to employ and keeping both high value and low value customers separated was relatively easy without the internet.
For those buying a new car; there is very little wiggle room for the dealership anymore because of the availability of consumer reporting and places like craigslist, NADA, etc.
The risk of receiving true price discrimination is much more possible with used cars - because of the many variables used to assess their value - the value can be "hidden" better to allow for price discrimination.
Froeb,Luke. 2014. Managerial Economics. Cengage Learning, Boston Mass.
Price Discrimination at the Dealership..
ReplyDeleteI have worked at velocity dealerships as a sales rep selling new and used cars, RVs and more. Price discrimination is the name of the game as is the prevention of arbitrage, which can often be confused by the customer as shady business practices by the dealership as "hiding" numbers and "showing" numbers becomes an art of illusion. While I completely agree that women and minorities do receive the worst initial offers; it's common for the sales force to observe the customers attire, car they drove in with, and we have gone as far as google mapping the location of the customers address in order to prepare a prospectus for that customer. An argument for another chapter could be made in regards to ethics and morale hazard; but for now we'll stay with price discrimination.
Before the worldwide web became the primary source for valuating new and used cars - the auto industry flourished up until the internet was able to provide customers with up to the minute objective valuations. It's common to hear an older salesman talk about the "good ol days" before the internet - when price discrimination was much easier to employ and keeping both high value and low value customers separated was relatively easy without the internet.
For those buying a new car; there is very little wiggle room for the dealership anymore because of the availability of consumer reporting and places like craigslist, NADA, etc.
The risk of receiving true price discrimination is much more possible with used cars - because of the many variables used to assess their value - the value can be "hidden" better to allow for price discrimination.
Froeb,Luke. 2014. Managerial Economics. Cengage Learning, Boston Mass.