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American Economic Review: Vol. 96 No. 4 (September 2006)

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$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions

Article 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.96.4.1253

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)

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Authors

Busse, Meghan
Silva-Risso, Jorge
Zettelmeyer, Florian


American Economic Review


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