Changing the Power Equation: A Structural Analysis of Used Car Markets on the Automobile Retail Channel

Changing the Power Equation: A Structural Analysis of Used Car Markets on the Automobile Retail Channel

• Assistant Professor of Marketing Dinakar Jayarajan

Abstract:

This research examines how used car retailing by new car dealers impacts vertical relationships in the automobile channel via an empirical study of transaction data from the Premium Midsize Sedan segment in the Indianapolis DMA between 2004 and 2006. The analysis reveals that dealers choose to stock used cars that are relatively close substitutes to their new counterparts and that used car prices have a significant, but asymmetric, impact on new car demand. On the supply side we find that selling used cars alongside new ones increases pricing flexibility for the dealer, delivering higher margins for both new and used vehicles, boosting total channel profits and permitting dealers to extract a greater share of these profits for themselves. Overall, similar to private labels in the grocery channel, used cars help dealerships to substantially improve their financial position and to shift power in the channel away from the manufacturer.

 

All Illinois Tech faculty, students, and staff are invited to attend.

The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.

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