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Car shoppers save by buying on the Internet says UC Berkeley/Yale study
26 Sep Mon 2000

By Ute Frey, Haas School of Business

BERKELEY, Calif., and NEW HAVEN, Conn. - Do consumers really save money buying a car online? In the first academic study to analyze Internet car pricing, two business professors from the University of California, Berkeley, and the Yale School of Management found that consumers get a 2 percent price reduction if they buy their car on the Internet instead of at traditional dealerships.

The study, "Internet Car Retailing," part of the National Bureau of Economic Research (NBER) E-Commerce Project, examined how Internet referral services affected dealer pricing of automobiles in California during 1999.

Fiona M. Scott Morton, associate professor of economics at Yale's School of Management, and Florian Zettelmeyer, assistant professor of marketing at UC Berkeley's Haas School of Business, together with Jorge Silva Risso from J.D. Powers and Associates, analyzed purchase data from, one of the largest Internet auto referral services, in combination with transaction data from J.D. Powers and Associates, one of the nation's leading consumer satisfaction indexers.

The researchers found that customers are able to shave 2 percent off their car purchases online for two reasons. On average, customers save 1.6 percent because car dealers are willing to lower their prices for, which refers to them many highly qualified sales leads. Customers save an additional 0.4 percent because contracts with dealers that offer lower prices to begin with. On a car purchase of $23,696, the average price of cars purchased online, a consumer can expect to save $450.

Based on their findings, the researchers estimate that dealer gross margins on an sale are $304 lower than the average $1700 earned by selling the same vehicle offline. However, because it takes less time and labor to serve online customers than in-store customers, it is likely that the average dealer benefits from participating in an Internet referral service.

Additional findings:

* Women on average pay 0.5 percent more than men at traditional car dealerships. When women purchase online, this bias disappears.

* Online consumers who say they are ready to buy within the next two days save an additional 0.3 percent , or $71.

* Online consumers are less likely to receive inflated trade-in vehicle prices from dealers; for offline consumers dealers commonly compensate for potential trade-in losses by charging consumers higher new vehicle prices.


To read the study in its entirety, visit Professor Zettelmeyer's Web site at