'The Best Price You'll Ever Get': The 2005 Employee Discount Pricing Promotions in the U.S. Automobile Industry

36 Pages Posted: 16 May 2007 Last revised: 10 Dec 2008

See all articles by Meghan R. Busse

Meghan R. Busse

University of California, Berkeley - Haas School of Business

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Florian Zettelmeyer

University of California, Berkeley - Marketing Group; National Bureau of Economic Research (NBER)

Date Written: December 9, 2008

Abstract

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.

Keywords: automobile pricing, price signal, promotion, search, information

JEL Classification: L11, L62, D83

Suggested Citation

Busse, Meghan R. and Simester, Duncan and Zettelmeyer, Florian, 'The Best Price You'll Ever Get': The 2005 Employee Discount Pricing Promotions in the U.S. Automobile Industry (December 9, 2008). Available at SSRN: https://ssrn.com/abstract=986799 or http://dx.doi.org/10.2139/ssrn.986799

Meghan R. Busse (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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HOME PAGE: http://faculty.haas.berkeley.edu/meghan/index.html

Duncan Simester

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Management Science
Cambridge, MA 02142
United States
617-258-0679 (Phone)
617-258-7597 (Fax)

Florian Zettelmeyer

University of California, Berkeley - Marketing Group ( email )

Haas School of Business
Berkeley, CA 94720
United States
510-643-1898 (Phone)
510-643-1420 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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