$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions
Meghan Busse, Jorge Silva-Risso, Florian Zettelmeyer
American Economic Review · 2006 · Volume 96 · Issue 4
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)
Keywords
Asymmetric and Private Information, Mechanism Design, Production, Pricing, and Market Structure, Size Distribution of Firms, Information and Product Quality, Standardization and Compatibility, Automobiles, Other Transportation Equipment, Retail and Wholesale Trade, e-Commerce, Marketing
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