NBER Publications by Jorge Silva-Risso

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' aver...

There is convincing evidence that the Internet has lowered the prices paid by some consumers in established industries, for example, term life insurance and car retailing. However, current research does not reveal much about how using the Internet lowers prices. This paper answers this question for the auto retailing industry. We use direct measures of search behavior and consumer characteristics to investigate how the Internet affects negotiated prices. We show that the Internet lowers prices for two distinct reasons. First, the Internet helps consumers learn the invoice price of dealers. Second, the referral process of online buying services, a novel institution made possible by the Internet, also helps consumers obtain lower prices. The combined information and referral price ef...