Price, Price Dispersion, Arbitrage and the Law of One Price: A Comparison of Online and Physical Wholesale Vehicle Auctions

We used a unique dataset of 30,533 off-lease vehicle auction sales (10,898 offline and 19,635 online) to examine the economic impact of adding an Internet sale channel to a firm’s existing channel portfolio. Our findings suggest that an Internet channel adds economic benefit in several ways. First, the data suggest that prices are significantly higher and that the dispersion of prices for vehicles sold is significantly narrower in the online channel than in the offline channel. In addition, the price difference observed between vehicles sold via online and offline channels is greater than one would expect to see from reduced transaction costs alone. Our data suggest that there are significant differences in the prices obtained for vehicles across locations and that and that these differences are associated with the flow of vehicles between states with vehicles flowing from low cost states to higher cost states. Finally, we show that the range of online prices is narrower that the range of offline prices. These findings are consistent with the suppositions that online prices converge more closely toward a national price than offline prices and that the online channel may allow the firm to capture a portion of the arbitrage rents.