American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions
American Economic Review
vol. 96,
no. 4, September 2006
(pp. 1253–1270)
Abstract
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. (JEL D82, L11, L15, L62, L81, M31)Citation
Busse, Meghan, Jorge Silva-Risso, and Florian Zettelmeyer. 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions." American Economic Review, 96 (4): 1253–1270. DOI: 10.1257/aer.96.4.1253Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L15 Information and Product Quality; Standardization and Compatibility
- L62 Automobiles; Other Transportation Equipment
- L81 Retail and Wholesale Trade; e-Commerce
- M31 Marketing