In the US truck market, dealers set prices on a transaction-by-transaction basis. Prices for the same pickup truck model can vary across consumers because of differences in optional equipment or price discrimination. Existing literature has focused on establishing price discrimination based on consumer demographics using cross-sectional data and produced mixed results. Using repeat purchase data controlling for pickup truck characteristics, including optional equipment, Stephan shows that consumers persistently pay high or low prices across vehicle purchases. Females and Hispanics pay higher prices for the same pickup truck, but price discrimination based on protected classes only explains a small fraction of price dispersion. This suggests that dealers have a large amount of information about buyers, which they may glean from test drives, conversations, credit scores, etc. Stephan quantifies the welfare effects of price discrimination using an equilibrium model of supply and demand with individualized pricing. He finds that price discrimination (i) did not lead to more competitive pressure for firms, reduced consumer surplus, and substantially increased firms’ profits; and (ii) on average, females and Hispanics lose most from price discrimination.
Date and Time
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Presenters
Stephan Sagl
Research Themes