'The Best Price You'll Ever Get': The 2005 Employee Discount Pricing Promotions in the U.S. Automobile Industry
Meghan R. Busse
University of California, Berkeley - Haas School of Business
Massachusetts Institute of Technology (MIT) - Sloan School of Management
University of California, Berkeley - Marketing Group; National Bureau of Economic Research (NBER)
December 9, 2008
During the summer of 2005, the three domestic 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 three firms, suggesting that customers thought that the prices offered during the promotions were particularly attractive. In fact, many customers paid higher prices following the introduction of the promotions than they could have, had they bought in the weeks just before. We fail to find evidence that the simultaneous increase in prices and sales is due to advertising, decreased financing costs, industry trends, or other explanations. We conclude that the most likely explanation is that the promotion changed customers' beliefs about current versus future prices, convincing them to purchase during the promotion rather than delay in anticipation of future discounts. We present several scenarios that could lead to such beliefs.
Number of Pages in PDF File: 36
Keywords: automobile pricing, price signal, promotion, search, information
JEL Classification: L11, L62, D83working papers series
Date posted: May 16, 2007 ; Last revised: December 10, 2008
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