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

61 Pages Posted: 27 Jun 2007 Last revised: 21 Aug 2007

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: May 2007

Abstract

During the summer of 2005, the Big Three 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 Big Three firms, suggesting that customers thought that the prices offered during the promotions were particularly attractive. In fact, such large rebates had been available before the employee discount promotion that many customers paid higher prices following the introduction of the promotions than they would have in the weeks just before. We hypothesize that the complex nature of auto prices, the fact that prices are negotiated rather than posted, and the fact that buyers do not participate frequently in the market leads customers to rely on "price cues" in evaluating how good current prices are. We argue that the employee discount pricing promotions were price cues, and that customers responded to the promotions as a signal that prices were discounted.

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 (May 2007). NBER Working Paper No. w13140. Available at SSRN: https://ssrn.com/abstract=989951

Meghan R. Busse

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

2220 Piedmont Avenue, #1900
Berkeley, CA 94720-1900
United States
510-642-9489 (Phone)
510-643-5180 (Fax)

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 (Contact Author)

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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