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American Economic Review: Vol. 103 No. 3 (May 2013)

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Estimating the Effect of Salience in Wholesale and Retail Car Markets

Article Citation

Busse, Meghan R., Nicola Lacetera, Devin G. Pope, Jorge Silva-Risso, and Justin R. Sydnor. 2013. "Estimating the Effect of Salience in Wholesale and Retail Car Markets." American Economic Review, 103(3): 575-79.

DOI: 10.1257/aer.103.3.575

Abstract

We investigate whether the first digit of an odometer reading is more salient to consumers than subsequent digits. We find that retail transaction prices and volumes of used vehicles drop discontinuously at 10,000-mile odometer thresholds, echoing effects found in the wholesale market by Lacetera, Pope and Sydnor (2012). Our results reveal that retail consumers devote limited attention to evaluating vehicle mileage, and that this drives effects in the wholesale market. We estimate the inattention parameter implied by the price discontinuities. In addition, our results suggest that estimating consumer-level structural parameters using data from an intermediate market can give misleading results.

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Authors

Busse, Meghan R. (Northwestern U)
Lacetera, Nicola (U Toronto)
Pope, Devin G. (U Chicago)
Silva-Risso, Jorge (U CA, Riverside)
Sydnor, Justin R. (U WI)

JEL Classifications

L62: Automobiles; Other Transportation Equipment
L81: Retail and Wholesale Trade; e-Commerce


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