Economic Trends
By Gene Koretz
The Web's Role As Equalizer
Do minorities shell out more for new cars than other purchasers of identical vehicles, as some observers claim? The results of past research on the question have been mixed.
In a 1995 study, for example, researchers reported that a group of carefully trained black male and female prospective car purchasers were offered far higher new-car prices ($1,100 and $410 higher, respectively) by Chicago-area dealers than those offered to similarly trained white males. However, another paper, analyzing data drawn from a nationwide survey of consumers, turned up little difference in prices paid by different racial groups.
A new National Bureau of Economic Research study by Fiona Scott Morton, Florian Zettelmeyer, and Jorge Silva-Risso may resolve the issue. Using reports on 750,000 actual purchases in 1999 and early 2000, provided by J.D. Power & Associates Inc., it confirms that African Americans, Hispanics, and--to a lesser extent--women do pay more for new cars than other buyers.
The results indicate that blacks, Hispanics, and women, on average, paid premiums of roughly $423, $483, and $105, respectively, for a typical new car in the $21,000 range. After adjusting for such factors as income and education that may affect price negotiations, the researchers estimate that blacks still paid about $315 more and Hispanics $231 more than other purchasers.
The authors have no way of telling how much of this difference, if any, reflects racial or ethnic discrimination. But whatever the cause, the good news is that using the Internet appears to make such price discrimination disappear.
Of the car sales analyzed in the study, roughly 3% were initiated by contact with a dealer via Autobytel.com. This leading Internet referral service not only provides consumers with detailed information about individual cars and current market conditions but also forwards specific purchase requests to a member of its extensive dealer network. The dealer then contacts the consumer and negotiates a price, typically by phone or e-mail.
Buying cars via the Web can result in lower prices for a variety of reasons--by making consumers more knowledgeable and increasing comparison shopping, for example, by making it more difficult for dealers to identify shoppers' personal traits, or by reducing marketing costs. The study finds, in fact, that simply using Autobytel.com cut costs for the average buyer, regardless of race or gender, by about 2%, or $400.
More important, because using the Web also eliminated the extra premiums paid by blacks and Hispanics, their costs fell even more--by some $650.
All of which, note the authors, points to a painful irony: "Disadvantaged minorities, who are far less likely to use a computer than others, are also the group that would most benefit from it."
Marriage's "Unique Effect"
Economists and social observers have long been intrigued by the tendency of married men to earn significantly more than single men. Some think it's because women tend to select mates with good earnings prospects or because freedom from housework allows husbands to focus more on their jobs. But others, including many conservatives, argue that being married tends to make men more responsible and diligent.
A new study in the journal Economic Inquiry suggests that the conservatives may have a point. Leslie S. Stratton of Virginia Commonwealth University examined the earnings histories of married men and found that the marital wage premium holds up, even after adjusting for age, education, and job experience. Moreover, the pickup in wage growth starts soon after men marry and continues as long as their marriages endure.
Merely cohabiting--living with a woman without being married--does not have the same effect, the study finds. Cohabiting men do earn more than single men living alone, but their wage advantage is smaller--about 13% compared to 22% for married men. Further, Stratton finds that the wage premium for cohabiting men is unrelated to their living arrangements, since it disappears after adjusting for personal characteristics.
Thus, says Stratton, marriage appears to have "a nearly unique effect on men's productivity." While the results don't rule out the possibility that freedom from household burdens contributes to this effect, they also suggest that the institution of marriage itself could have a potent effect on men's work motivation.
Wal-Mart vs. Inflation
One reason the Federal Reserve is less concerned about inflation than the European Central Bank, say economists at UBS Warburg, is the deflationary impact of America's more competitive retail environment.
As evidence, they point to a recent UBS survey of the impact of Wal-Mart Stores Inc. (WMT
) on grocery prices in locations where its Supercenter stores have been undercutting traditional supermarket chains. In such areas, the survey found that rivals' prices for grocery items were as much as 27% to 39% higher than Wal-Mart's, with the average discount offered by Wal-Mart stores for a comparable basket of goods running about 20% (table).
The researchers also found that Wal-Mart's presence forces down rival stores' prices--some 13% lower than in markets where Wal-Mart isn't a factor. With Wal-Mart opening more Supercenters and smaller grocery-focused outlets, price competition is heating up.
That spells less pressure on U.S. household budgets than in Europe where grocery competition is less intense. And, of course, less pressure on the Fed to step on the monetary brakes.
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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