Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?

Abstract

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.