During the summer of 2005, the Big Three U.S. automobile manufacturers offered a customer promotion that allowed customers to buy new cars at the discounted price formerly offered only to employees. The initial months of the promotion were record sales months for each of the Big Three firms, suggesting that customers thought that the prices offered during the promotions were particularly attractive. In fact, such large rebates had been available before the employee discount promotion that many customers paid higher prices following the introduction of the promotions than they would have in the weeks just before. We hypothesize that the complex nature of auto prices, the fact that prices are negotiated rather than posted, and the fact that buyers do not participate frequently in the market leads customers to rely on “price cues” in evaluating how good current prices are. We argue that the employee discount pricing promotions were price cues, and that customers responded to the promotions as a signal that prices were discounted.

Automobile manufacturers frequently use promotions involving cash incentives. While payments are nominally directed to either customers or dealers, the ultimate beneficiary of the promotion depends on the outcome of price negotiation. We use program evaluation methods to compare the incidence of these two types of promotions. Customers obtain 70 to 90 percent of a customer rebate, but only 30 to 40 percent of a dealer discount promotion, a $500 difference for a typical promotion. Our leading hypothesis is that pass-through rates differ because of information asymmetries: customer rebates are well-publicized to customers, while dealer discount promotions are not.

Although research has shown that the Internet has lowered the prices in some established industries, little is known about how use of the Internet lowers prices. The authors address this issue for the automobile retailing industry with matched survey and transaction data on 1500 car purchases in California. They show that the Internet lowers prices for two distinct reasons: First, the Internet informs consumers about dealers' invoice prices. Second, the referral process of online buying services helps consumers obtain lower prices. The combined information and referral price effects are -1.5%, or 22% of dealers' average gross vehicle profit. The authors also find that the benefits of gathering information differ by consumer type. Buyers who have a high disutility of bargaining but who have collected information on the specific car they eventually purchase pay 1.5% less than they otherwise would. In contrast, buyers who like the bargaining process do not benefit from such information.

Conventional wisdom suggests that one of the goals of manufacturer advertising is to reduce the cross-price elasticity between products (make one's own and rivals' products appear to be less substitutable in the eyes of consumers). Conventional wisdom also suggests that, all else being equal, retailers will be able to obtain better terms of trade from manufacturers the more substitutable are the manufacturers' products. It follows that retailers should be opposed to advertising that has the effect of reducing cross-price elasticities and thus that manufacturer advertising can be a source of channel conflict. We show that these conventional wisdoms need not hold when only some consumers are exposed to the advertising messages. Using a Hotelling model of demand, we show that (1) manufacturers can be worse off from advertising that reduces the cross-price elasticities between their products, (2) channel conflict need not arise, even when the sole purpose of advertising is to affect cross-price elasticities, and (3) depending on its bargaining power, a retailer can be better off when the manufacturers' products are perceived to be less substitutable.

Reviews the book "Ruling the Root: Internet Governance and the Taming of Cyberspace," by Milton L. Mueller.

Store brands are the only brands for which the retailer is responsible not only for promotion, shelf placement, and pricing, but also for positioning the brand in product space. We argue that retailers strongly value control over store brand positioning because they will be unable to source a national brand with their desired product positioning. This is because retailers have an incentive to position store brands as close substitutes to leading national brands - a location in product space which other national brand manufacturers would not find profitable. We present empirical evidence that is consistent with the results of our model.

Using a large dataset of automobile transaction prices, we find that offline African-American and Hispanic consumers pay approximately 2% more than do other offline consumers however, we can explain 65% of this price premium with differences in observable traits such as income, education, and search costs. Our estimates of unexplained race premia are smaller than previous estimates in the literature. Online, we find that minority buyers pay nearly the same prices as do whites controlling for consumers' income, education, and neighborhood characteristics. These results are consistent with the Internet facilitating information search and removing cues to a consumer's willingness to pay. Our results imply that the Internet is particularly beneficial to those whose characteristics disadvantage them in negotiating.

The Internet has led to a large number of third-parts' sources that offer high-quality information about firms's products at little or no cost to consumers. As a result, many of these sources have grown in popularity, extending well-beyond the usual reach of traditional third parties such as Consumer Reports and Kelly's Blue Book. For example. the online version of Edmunds offers, at no cost to consumers, information about new products, existing products. long-term tests, and buyers guides, all relating to the automotive industry. AvWeb.com delivers weekly aviation news and new product reviews to its readers, and a large number of websites follow developments on computer platforms such as the Apple Macintosh. In this paper we analyze how the provision ot third-party information affects the division of profits in a multiproduct distribution channel. To illustrate, consider the competition between Microsoft and Apple in the operating systems (OS) market and their channel relationship to CompUSA, a retailer that sells both Macs and Windows-based PCs. Consider two pieces of third- parts' information. First, suppose that CNET, an Internet technology site, reviews the newest upgrade of the MacOS and writes that the new user interface is even easier to use than previously. Second, suppose that an article in the technology section of the Wail Street Journal notes that changes in Apple's networking support now enable Macs to be better integrated into PC networks. These two pieces of information are similar in the sense that they both express good news about the MacOS and thus they both can be expected to benefit Apple by increasing consumer demand for Macs. One might also expect that in both cases CompUSA will capture some of the gains that come from the increased demand for Macs and that Microsoft will lose because the good news about the MacOS will induce sonic consumers to choose Macs over Windows-based PCs. However, we will show that this intuition is incorrect. The...

We investigate the effect 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 ($450 for the average car). 25% of the savings come from purchasing at low-price dealerships affiliated 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 efficiencies. A consumer receiving the mean online price does better than 65% of offline consumers, conditional on the car being purchased.

The author shows how firms' pricing and communications strategies may be affected by the size of the Internet: Firms have incentives to facilitate consumer search on the Internet, but only as long as the Internet's reach is limited. As the Internet is used by more consumers, firms' pricing and communications strategies on the Internet will mirror the strategies they pursue in a conventional channel. Firms can increase their market power by strategically using information on multiple channels to achieve finer consumer segmentation. The author suggests directions the Internet might take and derives managerial implications. The findings generalize to other channels that enable firms to segment consumers and inform them at low cost.

The aim of this paper is to explore the links between brand equity, consumer learning and consumer choice processes in general and considering two recent trends in the market place: store brands and the Internet. We first review the advances that have occurred in brand equity research in marketing in the past decade, with particular emphasis on integrating the separate streams of research emanating from cognitive psychology and information economics. Brand equity has generally been defined as the incremental utility with which a brand endows a product, compared to its non-branded counterpart. We amplify this definition: we propose that brand equity be the incremental effect of the brand on all aspects of the consumer's evaluation and choice process. We propose an agenda of research based on this amplified definition.

Provides a briefing on a study of Research, Development & Engineering (R,D&E) metrics and its use in industry, conducted by the International Center for Research on the Management of Technology (ICRMOT) at the Massachusetts Institute of Technology. Tier metaphor; Customer-driven R,D&E; Short-termism; Risk aversion; Benefiting from scope; Options thinking; Metrics for selecting technology.

It has recently been suggested that a number of experimental findings of context effects in choice settings can be explained by the ability of subjects to draw choice-relevant inferences from the stimuli. We aim to measure the importance of this explanation. To do so, inferences are assessed in an experiment using the basic context-effect design, supplemented by direct measures of inferred locations of available products on the price-quality Hotelling line. We use these measures to estimate a predicted context effect due to inference alone. For our stimuli, we find that the inference effect accounts for two-thirds of the average magnitude of the context effect and for about one-half of the cross-category context-effect variance.

This paper reports upon the testing of the comparative performance of eight epidemic based diffusion models on data describing the diffusion of camcorders and CD players in the UK and cars in West Germany. Standard epidemic models of new product diffusion are modified to allow for the influence of economic factors and compared to a recent model proposed by Karshenas and Stoneman. The performance of the Karshenas and Stoneman model is good, but so is that of an alternative model in the Marketing literature proposed by Easingwood, Mahajan and Muller.

We investigate how gasoline prices a ffect automobile purchases. We find that the adjustment of equilibrium market shares and prices in response to changes in usage cost varies dramatically between new and used markets. In the new car market, the adjustment is primarily in market shares, while in the used car market, the adjustment is primarily in prices. The e ffects are largest for the most- and least-fuel efficient cars. We argue that the di fference in how gasoline costs aff ect new and used automobile markets can be explained by di fferences in the supply characteristics of new and used cars.

Price variation for identical cars at the same dealership is commonly assumed to arise because dealers with market power are able to price discriminate among their customers. In this paper we show that while price discrimination may be one element of price variation, price variation also arises from inventory fluctuations. Inventory fluctuations create scarcity rents for cars that are in short supply. The price variation due to inventory fluctuations thus functions to efficiently allocate particular cars that are in restricted supply to those customers who value them most highly. Our empirical results show that a dealership moving from a situation of inventory shortage to an average inventory level lowers transaction prices by about 1% ceteris paribus, corresponding to 15% of dealers' average per vehicle profit margin or $250 on the average car. Shorter resupply times also decrease transaction prices for cars in high demand. For traditional dealerships, inventory explains 49% of the combined inventory and demographic components of the predicted price. For so-called 'no-haggle' dealerships, the percentage explained by inventory increases to 74%.