Date of Award

Spring 5-15-2019

Author's School

Graduate School of Arts and Sciences

Author's Department

Business Administration

Degree Name

Doctor of Philosophy (PhD)

Degree Type



I study marketing problems in the auto loan market. Focusing on a consumer financial product market has a couple of benefits. First, the auto loan market represents the third largest consumer credit in the U.S., so the market has high economic significance. More importantly, it offers a unique prospective in traditional marketing problems.

The first chapter studies consumer demand in the loan market. Different from traditional consumer products, what happens post transaction – loan repayment – is important. Using a large consumer panel data set of both credit and employment profiles, we study the demand for auto loans among consumers in response to receiving bonus payments. While bonus payments represent a one-time income increase, auto loans lead to a significant financial burden in the long term. We find an economically meaningful increase in auto loan demand around the month of receiving a bonus, even for low-income, subprime-credit-score consumers who only receive a small bonus. To explore the underlying mechanism that drives the demand, we test predictions from the permanent income hypothesis. Contrary to the theory prediction, the increase in auto loan demand is significant when the bonus is likely to be anticipated. Furthermore, the effect is robust for individuals who are unlikely to have liquidity constraints. These findings, however, can be explained by the mental accounting theory. Finally, we show that auto loans induced by bonus have a significantly higher delinquency rate than loans that originate at other times. This primarily comes from consumers with low incomes or subprime credit scores. Our findings can help financial institutions identify consumers who have a need for auto loans and those who have a higher delinquency risk in the future.

The second chapter studies price bargaining when both parties have digit bias when processing numbers, and shows a positive welfare implication of digit bias in bargaining. The empirical analysis focuses on the auto finance market in the U.S., using a large data set of 35 million auto loans. Incorporating digit bias in bargaining is motivated by several intriguing observations. The scheduled monthly payments of auto loans bunch at $9- and $0-ending digits, especially over $100 marks. In addition, $9-ending loans carry a higher interest rate and $0-ending loans have a lower interest rate than loans ended at other digits. I develop and estimate a Nash bargaining model that allows for digit bias from both consumers and finance managers of auto dealers. Results suggest that both parties perceive a steeper slope for larger ending digits and an extra gap between payments ending at $99 and $00 in their payoff functions. This model can explain the phenomena of payments bunching and differential interest rates for loans with different ending digits. I use counterfactual to show that, counter-intuitively, digit bias is beneficial for the party with the bias in bargaining. Consumers’ payments are reduced by $203 million in total and the aggregate payments of finance managers increased by $102 million because of own digit bias. I also quantify the economic impact of imposing non-discretionary markup compensation policies in indirect auto lending. I find that the payments of African American consumers will be lowered by $452 million and that of Hispanic consumers by $275 million.


English (en)

Chair and Committee

Tat Chan

Committee Members

Raphael Thomadsen, Chakravarthi Narasimhan, Dennis Zhang, Yesim Orhun,


Permanent URL: https://doi.org/10.7936/2n1j-5949

Available for download on Monday, May 15, 2119