ONLINE SHOPPERS FAVOUR WHITE SELLERS: Experimental evidence from the United States
An economic experiment that advertised iPods online from black and white sellers finds striking evidence of racial discrimination. The study by Professors Jennifer Doleac and Luke Stein, which is published in the November 2013 issue of the Economic Journal, reveals that black sellers received fewer offers at lower prices than white sellers.
What’s more, while black sellers did better in markets with larger black populations and where there was more competition to sell iPods online, they did even worse in parts of the country with higher property crime rates and more racially segregated housing.
The researchers conducted a year-long field experiment selling iPods in about 1,200 online classified ads placed in more than 300 locales throughout the United States, ranging from small towns to major cities.
They tested for racial bias among buyers by featuring photographs of the iPod held by a man’s hand that was either dark-skinned (‘black’), light-skinned (‘white’) or light-skinned with a wrist tattoo. In all other respects, the photos were very similar.
The experiment, which was conducted from March 2009 to March 2010, found that black sellers did worse than white sellers on a variety of metrics: they received 13% fewer responses, 18% fewer offers and offers that are 11-12% lower. These effects are similar in magnitude to those associated with a white seller’s display of a tattoo, which the authors included to serve as a ‘suspicious’ white control group.
Buyers corresponding with a black seller also behaved in ways suggesting that they trusted the seller less: they were 17% less likely to include their names, 44% less likely to agree to a proposed delivery by mail and 56% more likely to express concern about making a long-distance payment.
At the time the ads were placed, among the 300-plus local ad sites, the average market had 15.7 other advertisements for iPod Nanos that had been listed in the previous week. Just 18% of the experiment’s ads were posted in markets with at least 20 other advertisements.
In those thicker markets, with at least 20 other iPod ads, black sellers received the same number of offers and equal best offers relative to whites. Conversely, black sellers suffered particularly poor outcomes in thin markets with fewer buyers and sellers, where they received 23% fewer offers and best offers that were 12% lower – very similar to the results for the tattooed sellers’ ads.
Furthermore, black sellers did worst in markets with high property crime rates and more racially segregated housing. This suggests that at least part of the explanation is ‘statistical discrimination’ – where race is used as a proxy for unobservable negative characteristics, such as more time or potential danger involved in the transaction, or the possibility that the iPod may be stolen – rather than simply ‘taste-based’ discrimination (against race itself). But it is also possible that animus against black sellers is higher in high-crime or high-isolation markets.
The authors also found that black sellers did better in markets with larger black populations, which suggests that the disparities may be driven, in part, by buyers’ preference for own-race sellers.
The ads in the experiment all featured a silver, 8-gigabyte ‘current model’ iPod Nano digital media player, described as new in an unopened box and available for sale because the seller did not need it.
The researchers never met any buyer in person. Instead, when it came time to set up a meeting, they said they were out of town and offered to ship the iPod to the buyer’s home in exchange for payment via PayPal, an electronic payment system widely used for online person-to-person transactions.
This proposal is generally regarded as suspicious, as classified ad websites like Craigslist strongly advise users to deal locally only with in-person transactions and to avoid deals involving shipping, mailing or online payments. In response to this suspicious offer, those corresponding with black sellers reacted much more negatively, implying less underlying trust.
The average ad received 2.7 responses (probable scam responses were ignored) and the text of all subsequent email interactions was scripted to be consistent.
Professor Doleac comments:
‘The environment in which we conducted our experiment has many advantages. Buyers have no reason to make offers that they do not anticipate ending in a transaction.
‘Trust also plays a key role in the interactions – the buyer expects to meet a seller to complete the transaction and faces the real possibility of deception or theft.
‘These are characteristics of many ‘real-world’ market transactions that are not present in the markets considered by many other studies.
‘We believe our research isolates the effect of race on market outcomes more convincingly than previous studies and provides some insight into why buyers are discriminating.’
Notes for editors: ‘The Visible Hand: Race and Online Market Outcomes’ by Jennifer Doleac and Luke Stein is published in the November 2013 issue of the Economic Journal.
Jennifer Doleac is assistant professor of public policy and economics at the University of Virginia.
Luke Stein is assistant professor of finance at Arizona State University.
They conducted the experiment while both were doctoral students in economics at Stanford University.
For further information: contact Jennifer Doleac via email: firstname.lastname@example.org; Luke Stein via email: email@example.com; or Romesh Vaitilingam on +44-7768-661095 (email: firstname.lastname@example.org; Twitter: @econromesh).