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# Little difference on odometer, big difference for used car price?

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Chuck Burton / AP / File

(Read caption) In this April 20, 2011 photo, Jeremy Barnes poses in front of the 2007 Honda he is selling near his home in Greensboro, N.C. A new study shows that a small change in the number of miles shown on an odometer can have a big effect on how much a buyer is willing to pay.

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Is a penny only a penny? We see firms pricing products for \$9.99 to avoid "double digits" or \$99.99 to avoid a "triple digit" price tag. These firms must believe that consumers see a "jump" between the price of \$9.99 and \$10 and that consumers will be less likely to buy the "expensive" product even if it costs just 1 penny more. In this new NBER paper, Lacetera, Pope and Sydnor have managed to access a 22 million observation used car data set and they document a very funny new fact.

When they graph the used vehicle's sales price with respect to its odometer reading, they see a sharp reduction (a discontinuity in nerdspeak) at salient cut points such as 10,000 mile intervals (so 10,000, 20,000, 30,000 etc). This suggests that folks are engaging in "rounding" off significant digits. So consider two identical used 2004 Volvos. One has an odometer reading of 59,967 and other is at 60,012. These researchers are claiming that a typical buyer does not view these vehicles as identical because the buyer thinks; "the first car has 50,000 miles while the 2nd car has 60,000" miles. This is what I mean by "rounding" -- not rounding up but just working with 1 significant digit. If buyers view the 59,967 mile vehicle as a 50,000 mile vehicle then they will be willing to pay more for it and these researchers will observe a higher used vehicle price for the 59,967 mile vehicle relative to its 60,012 mile twin. Their regression statistical techniques are simply averaging over these pair comparisons.