Race and Gender Discrimination in Bargaining for a New Car Ian Ayres Peter Siegelman

The Method 4 Groups Analyzed  White Males  White Females  Black Males  Black Females Audit Technique  Pairs (one always white male)

The Method 38 testers 306 cars 153 dealerships in Chicago Nine car models Conducted at Off-peak hours

The Method Randomness  Dealerships  Testers to Dealerships  Composition of Pairs  First to Enter

The Method – Bargaining Each tester followed a “uniform bargaining script that instructed them to focus quickly on one particular car and start negotiating over it. At the beginning of the bargaining, testers told dealers that they ould provide their own financing.”

The Method – Bargaining Strategies Initial offer  Counter offer equal to the dealer’s marginal cost for the car “split-the-difference” strategy “fixed-concession” strategy

Controls and Uniformity Age: all testers were between 28 and 32 years old Education: All testers had 3-4 years of postsecondary education Attractiveness: All testers were subjectively chosen to have average attractiveness.***

Controls and Uniformity Similar signs of economic class  All testers wore similar “yuppie” sportswear and drove to the dealership in similar rented cars Testers had a long list of contingent responses to the questions they were likely to encounter (i.e. career or address)

Controls and Uniformity Two days of training  Mock negotiations  Memorized bargaining script Testers did not know the circumstances of the study

Trends The differences in prices quoted are robust to a variety of alternative specifications.  Fixed vs. Random Effects  Individual-Tester Effects  Attempted acceptances versus Refusals

Trends Nonparametric Tests for Race and Gender

Trend Conclusions 1) Both final and initial offers display large and significant differences in outcomes by race and gender. 2) Results are robust. The magnitude and significance of the race and gender effects under various alternative specifications, combined with the insignificance of the individual-tester effects, reinforce conclusions.

Sources of Discrimination Animus based discrimination Statistical Discrimination

Animus Owner animus Employee Animus Customer Animus Evidence argues against animus-based theories as primary explanation

Statistical Theories Search Costs  Likelihood of owning car when they already have one  Questions about owning a car, visiting other dealerships  Blacks in the suburbs

Statistical Theories Consumer Information  Negotiable Sticker Price  Offers given at Sticker Price

Statistical Theories Bargaining Costs  Buyer’s aversion to conducting negotiations

Conclusion “Chicago car dealers offered black and female testers significantly higher prices than the white males with whom they were paired, even though all testers used identical bargaining strategies”