Estimating the Effect of Salience in Wholesale and Retail Car Markets

We investigate whether the first digit of an odometer reading is more salient to consumers than subsequent digits. We find that retail transaction prices and volumes of used vehicles drop discontinuously at 10,000-mile odometer thresholds, echoing effects found in the wholesale market by Lacetera, Pope and Sydnor (2012). Our results reveal that retail consumers devote limited attention to evaluating vehicle mileage, and that this drives effects in the wholesale market. We estimate the inattention parameter implied by the price discontinuities. In addition, our results suggest that estimating consumer-level structural parameters using data from an intermediate market can give misleading results. Busse: Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois (e-mail [email protected]). Lacetera: University of Toronto, 105 St. George Street, Toronto, Ontario, Canada (e-mail: [email protected]). Pope: University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, Illinois (e-mail: [email protected]). Silva-Risso: University of California, Riverside, 900 University Ave., Riverside, California (e-mail: [email protected]). Sydnor: University of Wisconsin School of Business, 975 University Ave, Madison, Wisconsin (e-mail: [email protected]). We are grateful to Dan Silverman and to participants at the AEA Session on Structural Behavioral Economics at the 2013 ASSA Meetings in San Diego.