We find that auto repair shops alter their price quotes depending on how informed consumers appear to be about prices. Women are quoted higher prices than men when callers signal that they are uninformed about prices. These gender differences disappear when callers indicate a benchmark price.
We investigate how sellers respond to differences in how well-informed buyers are. We hold buyer behavior fixed by using "mystery shoppers" who follow scripts. We measure how sellers' price quotes vary on the basis of how well informed buyers appear to be. If firms treat consumers differently, consumers can strategically use information about prices to receive better price quotes.
In our study, mystery callers contacted hundreds of repair shops using scripts we prepared for them and asked for a price quote to repair their 2003 Toyota Camry. The difference between the scripts manipulated how informed the callers appeared to be about prices. In the "Informed" and "Misinformed" conditions callers mention a price benchmark (either the average price or a price that is too high) they found online. In the "Uninformed" conditions, callers indicate that they "have no idea" how much the repair should cost. If the quoted price is higher than benchmark, callers request a price match.
Figure: Initial Price Quote by Gender and Condition
Firms offer different prices depending on whether they perceive consumers to be correctly informed, misinformed, or uninformed: shops quote higher prices when consumers are misinformed (i.e., when they have a high price benchmark). In addition, when callers signal they are uninformed about market prices, women are quoted higher prices than men. These gender differences disappear when callers indicate an expected price. We find that women are more likely to obtain price concessions than men, but the magnitude of the concession does not vary by gender. Also, informed women are more likely to obtain concessions than uninformed women.
We show that consumers' price knowledge can alters firm behavior, by signaling how informed consumers are and in response to being used as a reference in negotiations. In the absence of direct information on consumers' price perceptions, firms revert to other information cues (in this case, gender) to identify consumers' type. Finally, women, in particular, benefit from information because information alleviates price discrimination. In addition, information is more helpful for women than men in negotiating a concession. In general, however, we find that it pays. Consumers who perform simple online research are able to appear more savvy and tend to get better prices.
Questions for the Classroom
In what ways can the Internet reduce price discrimination (online and offline)?
How can consumers use benchmark prices to influence bargaining outcomes?
Why might an auto-repair shop quote higher prices to women than to men for the same repair?
Meghan R. Busse, Ayelet Israeli, and Florian Zettelmeyer (2017), “Repairing the Damage: The Effect of Price Knowledge and Gender on Auto Repair Price Quotes,” Journal of Marketing Research, 54 (1), 75-95.
Meghan R. Busse is Associate Professor of Strategy, Kellogg School of Management, Northwestern University (e-mail: email@example.com).
Ayelet Israeli is Assistant Professor of Business Administration, Harvard Business School, Harvard University (e-mail: firstname.lastname@example.org).
Florian Zettelmeyer is Nancy L. Ertle Professor of Marketing, Kellogg School of Management, Northwestern University (e-mail: email@example.com).