Buyers are more likely to purchase something from an online classified ad if they think the seller is white, research shows.
A yearlong experiment selling iPods in about 1,200 online classified ads placed in more than 300 locales across the United States, ranging from small towns to major cities, 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.
Black sellers did worse than white sellers on a variety of metrics: they received 13 percent fewer responses, 18 percent fewer offers, and offers that were 11 to 12 percent lower, according to the study that was conducted from March 2009 to March 2010.
The results were similar in magnitude to those associated with a white seller with a tattoo, which the authors included to serve as a “suspicious” white control group.
Published online in the Economic Journal of the Royal Economic Society, the findings also show that buyers corresponding with a black seller behave in ways suggesting they trust the seller less: they are 17 percent less likely to include their names, 44 percent less likely to agree to a proposed delivery by mail, and 56 percent more likely to express concern about making a long-distance payment.
“We were really struck to find as much racial discrimination as we did,” says Jennifer Doleac, assistant professor of public policy and economics at the University of Virginia.
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 percent 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 percent fewer offers and best offers that were 12 percent lower—very similar to the results for the tattooed sellers’ ads.
Black sellers do worst in markets with high property crime rates and more racially segregated housing, suggesting that at least part of the explanation is “statistical discrimination”—that is, 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), Doleac says.
However, “it is also possible that animus against black sellers is higher in high-crime or high-isolation markets.”
Black sellers also do better in markets with larger black populations, “suggesting that the disparities may be driven, in part, by buyers’ preference for own-race sellers,” the researchers write.
The experiment ads all featured a silver, 8-gigabyte “current model” iPod nano digital media player, described as new in an unopened box, and for sale because the seller did not need it.
Less underlying trust
The researchers never met with the buyers in person. Instead, when it came time to set up a meeting, they told the buyer they were out of town and offered to ship the iPod in exchange for payment via PayPal, an electronic payment system widely used for online person-to-person transactions.
This proposal is generally suspicious, as classified ad websites like Craigslist strongly advise users to deal locally only with in-person transactions, and avoid deals involving shipping or 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.
“The environment in which we conducted our experiment has many advantages,” Doleac says. “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 in order 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 study isolates the effect of race on market outcomes more convincingly than previous studies and provides some insight into why buyers are discriminating.”
Luke C.D. Stein, assistant professor of finance at Arizona State University was a co-author on the study, that was conducted while he and Doleac were doctoral students in economics at Stanford University.
Source: University of Virginia