George E. Hoffer

The Impact of Product Recalls on the Wealth of Sellers: A Reexamination

In a recent article in this Journal, Jarrell and Peltzman (1985) opened an important new area to event study research when they analyzed the effect of automobile and drug product recalls on the shareholders of firms within these industries. Earlier, Crafton, Hoffer, and Reilly (1981) and Reilly and Hoffer (1983) found that severe automobile recalls have a significant short-term impact on demand, but neither study investigated the effect of recalls on industry shareholders. In their work, Jarrell and Peltzman found that for manufacturers of automobiles and ethical drugs, capital markets penalized shareholders far more than the direct costs of the recall campaign. Further, they concluded that in both industries, shareholders of competitor firms to the firm with the recalled product(s) also suffered wealth losses. Interestingly, they concluded that over the 1975-81 period shareholders of General Motors bore greater wealth losses from the recall of a Ford or Chrysler product than they did from the recall of a GM product. This paper presents several modifications to the Jarrell-Peltzman study, as it applies to the automobile industry, for the purpose of

Do Women Pay More for New Vehicles? Evidence from Transaction Price Data

Recently, there has been a debate concerning whether price discrimination by new vehicle dealers results in systematically higher prices for minority and female buyers. Ian Ayres and Peter Siegelman (1995) and Pinelopi Koujianoi Goldberg (1996) use different methodologies and different data sets and come to different conclusions. Ayres and Siegelman use testergenerated paired audits and find that black and female test buyers were quoted higher prices than white males. Goldberg uses Consumer Expenditure Survey (CES) data and finds no systematic evidence of price discrimination in transaction price discounts by race or sex (but greater variation in discounts for blacks). Our paper contributes to the debate on price discrimination in new car purchases using a new J.D. Power and Associates database that reports gross profit directly from dealer financial software systems. Although our data set does not distinguish the race of the buyer, we do get direct evidence on dealer profit for male and female buyers in a sample reflecting over 4,000 new vehicle transactions. Our paper addresses the previously obtained contradictory results and differs from the previous studies in several ways. The database we use permits us to measure directly dealers’ self-reported gross profit per vehicle—the best measure of differential treatment. The database reflects contemporaneously collected dealer data: it comes from the same financial software programs that are used to automatically report data to the franchiser/ manufacturer, financial institutions, and motor vehicle bureaus as well as being used to calculate sales tax liabilities. Further, the data set allows us to test for price discrimination in the profit contributions of ancillary tie-ins such as service contracts, credit life insurance, and dealer residuals from financing the vehicle purchase. In the Ayres and Siegelman study, black auditors received initial offers or negotiated prices that were much higher than those for the paired white male auditors at the same dealerships—

The antilock braking system anomaly: a drinking driver problem?

400 more for black females and

The effect of media presentation on the formation of economic expectations: Some initial evidence

1,060 more for black males. White female auditors received offers or negotiated prices that were

The virtual automotive dealership: is it time? Is it legal?

55 to

Market responses to publicly-provided information: the case of automative safety

129 more than those for white males, but the effect was not statistically significant. Ayres (1995) combined the paired audit data with additional unpaired data gathered in the same study, and finds that final offers to white women were

The Distribution of Automobile Liability Insurance: An Alternative

216 higher than to white men and with a p-value (0.06) approaching conventional significance levels. Under the audit technique no tester ever consummated a transaction so Ayres and Siegelman have no measure of vehicle profit from any sale. Goldberg (1996) argues that the offers obtained by the auditors do not reflect transaction prices in part because the protocol for the Ayres and Siegelman study called for auditors to adopt one of two bargaining strategies. Seller behavior should be different across classes of consumers if the classes have different demands (e.g., different variances of reservations prices) or different bargaining strategies. Goldberg maintains that since different classes of buyers may use different bargaining strategies, the offers obtained by the auditors reveal information about seller behavior but not about transaction prices. Goldberg (1996) uses CES data from 1983 to 1987 to test for price discrimination by new vehicle dealers. Controlling for a number of variables, she was unable to find reliable evidence that blacks or white females received smaller discounts on the manufacturer’s suggested retail price (MSRP) than white males. The estimation results suggested that white females received discounts that were

Crash Test Dummies? The Impact of Televised Automotive Crash Tests on Vehicle Sales and Securities Markets

130 smaller than those received by white males, but the effect was statistically insignificant. The Gold* Department of Economics, Virginia Commonwealth University, Box 844000, Richmond, VA 23284. We thank Glenn Mercer of McKinsey and Company for providing us with access to the J.D. Power and Associates database.

The virtual automotive dealership revisited

Antilock braking systems (ABS) have held promise for reducing the incidence of accidents because they reduce stopping times on slippery surfaces and allow drivers to maintain steering control during emergency braking. Farmer et al. (Accident Anal. Prevent. 29 (1997) 745) provide evidence that antilock brakes are beneficial to nonoccupants: a set of 1992 model General Motors vehicles equipped with antilock brakes were involved in significantly fewer fatal crashes in which occupants of other vehicles, pedestrians, or bicyclists were killed. But, perversely, the risk of death for occupants of vehicles equipped with antilock brakes increased significantly after adoption. Farmer (Accident Anal. Prevent. 33 (2001) 361) updates the analysis for 1996- 1998 and finds a significant attenuation in the ABS anomaly. Researchers have put forward two hypotheses to explain this antilock brake anomaly: risk compensation and improper operation of antilock brake-equipped vehicles. We provide strong evidence for the improper operation hypothesis by showing that the antilock brake anomaly is confined largely to drinking drivers. Further, we show that the attenuation phenomenon occurs consistently after the first three to four years of vehicle service.

THE SUPER AUTOMOTIVE CATEGORY KILLER: WHY NOW, WHAT FUTURE?.

Abstract This paper provides some initial evidence on the sensitivity of economic expectations to differences in media reporting. It reports the results of an experiment in which 120 undergraduate students were selectively exposed to different media reports of identical U.S. Department of Labor economic news releases and then asked for their projections concerning future states of the economy. A total of 36 different media stories were used from three media sources - The CBS Evening News, The Wall Street Journal and the Washington Post . The subjects monetary rewards were a function of the accuracy of their economic predictions. The authors found that differences in presentation of the same economic data can have a significant effect on expectations, as the CBS television and the Wall Street Journal presentations resulted in significantly less accurate sets of expectations regarding short-term future unemployment than did the Washington Post presentations.