Freeman

THE PURSUIT OF HAPPINESS

Lot Lizards, Sexism and Markets

Getting ripped off at the dealership? There’s an app for that.

SEPTEMBER 11, 2013 by JEFFREY A. TUCKER

At first I was rattled by the advertisement for a service called “TrueCar.com.” This handy smartphone app prints out a certificate that shows what the actual selling price has been for particular car makes and models in your neighborhood. 

You present that to a “certified TrueCar dealer” as a way of putting an end to the hassle of negotiating a price on a good we don’t buy that often. You can be sure that you are paying the best possible price. 

It’s a nice service for everyone, but what struck me was the demographic targeted by the ad: women. Near the end of the commercial, a woman puts a fine point on it with a sense of confidence: “I don’t need to bring a dude with me.” 

Hmmm, I didn’t actually know that some women felt that they might get a better deal by letting a man do the negotiating. In fact, I don’t think I knew this was an issue. Now, if you are woman, you might be thinking, “Are you kidding me? Everyone knows this and it is annoying as heck!” 

If so, I stand corrected. But I wondered: Is this sexism perception, or has there been some scientific verification of it? 

 

The Evidence

I looked it up and was overwhelmed by the empirical evidence. The evidence began to pour in in the early 1990s, starting with Ian Ayers’s Harvard Law Review piece that upheld car price discrimination as proof that government needs to go much further to purge sexism from society and economic life.

There is no question that the empirical premise is correct. Blacks and women in general pay higher prices for cars. This truth has been demonstrated in every study without exception. 

You might at first think this is because women and blacks are just not as willing to “drive a hard bargain.” But researchers Ayres and Peter Siegelman (Yale) tested this, too, by sending in customers using the same negotiating tactics. 

“More than 300 paired audits at new-car dealerships reveal that dealers quoted significantly lower prices to white males than to black or female test buyers using identical, scripted bargaining strategies,” they wrote in 1995. “Ancillary evidence suggests that the dealerships’ disparate treatment of women and Blacks may be caused by dealers' statistical inferences about consumers' reservation prices.”

In other words, sellers might just be presuming they can get women and blacks to cough up more money for the same good. And they get away with it, too. 

 

Market Failure?

Now, at first a market advocate might feel defensive about this little revelation. Does it not show that sellers are essentially getting away with a kind of racism and sexism? That’s the implication behind many of the studies. Is this not a market failure? The further implication is policy-related. If markets are this unfair, don’t we need government to do something about it, perhaps with price mandates that overtly stomp out this sort of thing?

I would say no to both assertions. 

Speaking as an American white male, I might seem to be privileged and hence not a victim of this nonsense and—further, insensitive to its indignities. And, for the most part, it is true that I don’t experience such annoyances. I can completely understand why being disadvantaged on grounds of sex or race could be vexing, even infuriating, especially if it is systematic and pervasive. 

Are there any circumstances under which I would be subjected to the exact same phenomenon? I can think of one: traveling in foreign country and using a foreign currency.  When I was in Turkey and wanted to buy a sponge from a street vendor, there were no posted prices. He quoted me 10 euros and I made some effort to talk him down but ended up settling on 9. Every good seller wants the customer to believe that he or she won, and I did feel that briefly. But as I walked away, I had the sense that that probably paid twice what any native would have paid. I can’t prove it but I’d bet on it. 

And the same thing happened when I was in Italy, where I bought shirts, wallets, and shot glasses at prices that would probably cause every real Italian to point to me and say, “sucker!” 

Was I victimized? I wanted that sponge and it was worth more to me than the 9 euros in my pocket. The vendor regarded my 9 euros as more valuable than his sponge. We traded. We benefitted. Both of us were better off than before. By how much? There’s no way to quantify it. It is a subjective sense. So I didn’t really walk away as a victim of anything. I won just as the seller won.

Might this vendor have traded the sponge with a native bearing 4 euros? Perhaps, but how does that counterfactual actually hurt me? It certainly doesn’t mean that the vendor somehow “ripped me off” because I paid 5 additional euros. I gave my money willingly. No one forced me. I could have walked away, but I did not. 

 

The Divine Price

There is no “just price” that is dictated by any divine law. A price is a point of agreement between buyers and sellers—the point at which they are willing to act to the mutual benefit—and nothing more. Whatever price causes the exchange of property titles is the right price. 

Why should it matter to me at the point of the exchange whether others before or after me are paying less? Perhaps I would rather pay more than experience the anxiety of continued haggling and bargaining. Perhaps I really am clueless about the “true” price of a sponge but find the costs of discovering the going market price to be too much trouble. 

It seems to me that, in the cases of the Turkish sponge or the Italian leather goods, I am clearly being discriminated against on grounds of being an ignorant foreigner who knows nothing about local market conditions. But this discrimination doesn’t hurt anyone at all. It’s not a “rip off.” I’m not being “taken advantage of.” I’m not being “robbed.” I’m making a deal on a pure, mutually beneficial basis. 

Now, you might say that it’s one thing to be overcharged in some far-flung country by some itinerant street vendor. That’s not so humiliating. But to be systematically overcharged on a necessary purchase within your own locale solely on grounds of sex or race is degrading. Maybe it is true that no one is physically harmed, you are thinking, but it is just dehumanizing for markets to end up producing such predictable inequalities in the treatment between people. 

Again, I can understand the annoyance. Such things account for why many people doubt that the market is a mechanism for the delivery of fairness and impartiality. 

 

Kelley Blue Book, TrueCar and Haggle-Free Dealerships

But are “markets” themselves actually doing this? Markets are not the problem; markets are the solution. The car market has long been an annoyance to most Americans, regardless of sex or race, because buying a car is one of the few times in our experience that we have to deal with posted retail prices. As a result, market-based services that reveal broader market prices (Blue Book) have been around for decades. 

The Internet changed the game dramatically. By the early 2000s, we began to see it changing the way car retailing works. A 2003 study (by Fiona Scott Morton of Yale, Florian Zettelmeyer of Berkeley, and Jorge Silva-Risso of J.D. Power) concluded that “the Internet is disproportionately beneficial to those who have personal characteristics that put them at a disadvantage in negotiating. African-American and Hispanic individuals, who are least likely to use the Internet, are the ones who benefit the most from it.”

Once it became possible to carry a full and detailed price structure on your smartphone, the jig was largely up. And today, the car retail market is tending toward a “no haggle” price, perhaps in response to better price-discovery technologies. 

And yet the problem—which is a problem only in the sense that it is an annoyance, but doesn’t amount to robbery or fraud—hasn’t gone away entirely. Hence, TrueCar’s targeted advertising campaign. But look at this: What some might describe as a market failure is actually a market opportunity. A few companies saw a chance to profit by addressing the harm felt by women and minorities in the retail car market. 

How much better are these market solutions than a law that would fix or mandate posted and enforced prices across all demographic groups? Such a law would actually harm producers and consumers by denying them the right to negotiate lower prices. A law like that does real damage. An example is “equal pay for equal work” laws. They end up restricting opportunities, lowering producer profitability, and reducing opportunities for bargaining. 

 

Apps and Blunt Instruments

The moral of the story: if you have a problem with the way the market is treating you, don’t go to government. It’s too blunt an instrument. There might be an app for that. Or you might be looking at an opportunity to create and sell your own app. Markets contain within themselves the basis for solving their own problems, and always more elegantly than the rough hand of the law. You don’t need to “bring a dude with you” after all. 

(Special thinks to Cathy Reisenwitz for her extremely insightful comments on a draft. She bears no responsibility for the final product).

ABOUT

JEFFREY A. TUCKER

Jeffrey Tucker is a distinguished fellow at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events.  

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