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)
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