The Visible Hand: Race and Online Market Outcomes

Abstract

We examine the effect of race on market outcomes by selling iPods through local online classified advertisements throughout the US. Each advertisement features a photograph including a dark or light-skinned hand, or one with a wrist tattoo. Black sellers receive fewer and lower offers than white sellers, and the correspondence with black sellers indicates lower levels of trust. Black sellers’ outcomes are particularly poor in thin markets (suggesting that discrimination may not ‘survive’ competition among buyers) and those with the most racial isolation and property crime (consistent with channels through which statistical discrimination might operate). Economic outcomes in the US are highly correlated with race but the causal mechanisms underlying these correlations are not well understood. In particular, it remains unclear how much of the correlation is due to discrimination and how much is due to other characteristics that are correlated with race, such as education. There is an extensive literature on the effect of race on market outcomes, focusing on both labour and goods (including housing) markets. However, ‘discrimination’ is not a monolithic phenomenon, and it is important to investigate its extent and causes in a variety of different contexts (across which they may differ). Our study asks the following question: When the typical person engages in a consumer transaction (usually as a buyer) does he or she try to avoid dealing with minority sellers, and does she treat minority sellers differently?