Budding Economist Studies Car Ads by Day, Plays Jazz by Night

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If you’re lucky, you might catch Charles Murry at Fellini’s one evening playing Duke Ellington’s classic “Take the ‘A’ Train.” Talk to him and you’ll learn that his talents extend beyond his adroit handling of the upright bass – and that, contra Ellington, the vehicle that interests Murry most is not the locomotive, but the car.

Murry, who will graduate May 18 with a Ph.D. in economics, has already made a name for himself as a perceptive observer of the automobile industry and as a semi-professional jazz musician. Although jazz and economics appear to come easily to the Herndon native, he insists that he’s doing more than just improvising.

“Hours and hours of repetitive practice go into what people perceive as improvisation,” Murry said. “A lot of people have this impression that jazz is this unorganized spontaneous type of music, when in fact jazz has a tremendous amount of structure to it.

“In economics, there’s a tremendous amount of structure that has its roots in logic and mathematics. Jazz is the same way: it has its roots in logic and to some extent mathematics.”

His attention to structure and logic notwithstanding, his professors say he’s approached his material with unusual creativity – with artfulness, even. His riffs on advertising decisions in automobile markets have won him acclaim from professors and a prized position as an assistant professor of economics at Pennsylvania State University, a “top job” in his field, said Commonwealth Professor of Economics Simon Anderson, one of Murry’s advisers.

The 29-year-old completed his undergraduate education at the University of Delaware in 2006, where he studied jazz and majored in economics. After graduating, he worked for two years as a research assistant for the Federal Reserve Board of Governors in Washington, D.C.

“I supported Ph.D. economists who worked for the government,” Murry said. “I really learned what it was like to be a professional economist, and I decided that I would like to be a professional economist.” With a completed dissertation and a plum job waiting for him at Penn State (he’ll start in August), Murry is well on his way.

His dissertation’s originality helped launch his career. His project explores how car manufacturers and car dealers make decisions about pricing and about sharing the costs of advertising.

The relationship between a car manufacturer and a car dealer can be a fraught one. Many regulations at the state level govern how a car manufacturer (say, Ford) interacts with dealerships (the local Ford dealers from whom consumers actually buy cars). For example, in nearly all states, manufacturers can’t sell cars directly to consumers. (At least not yet: Tesla Motors, which produces electric vehicles, wants to bypass franchise dealers and sell cars directly to consumers. The automaker’s efforts to do so have succeeded in Ohio, but have floundered in other states, such as Texas.)

“I think the central question is: does the current model of new car distribution – the current relationship between manufacturers and dealers – does this lead to market outcomes that are inefficient, and is there an alternative way to organize this market that would be more efficient?” Murry said. “I find support for the argument that many of the state regulations that currently exist promote inefficiencies in the market – inefficiencies for consumers and for firms. So there could be lower prices for consumers, or greater profits for manufacturers, if these state regulations didn’t exist.”

Murry’s dissertation does not address the “political economy” of the various state regulations governing how cars are sold. But he said that existing state laws tend to favor dealers. “Dealers are very powerful in state legislatures,” he said.

Murry’s research focuses on the role advertising plays in the knotty relationship between manufacturers and dealers. Both dealers and manufacturers want their cars to be sold, of course. But when it comes to putting money on the table for advertising, each side has a different set of incentives. Sometimes a local dealer will cover the majority of advertising costs. In other cases, the manufacturer will shoulder most of the burden.

With some brands – especially brands with low consumer loyalty – the manufacturer tends to cover most of the advertising costs in an attempt to ramp up sales across dealerships. For brands that already enjoy a high degree of consumer loyalty, such as Volvo, the manufacturer has less of an incentive to spend on advertising. Instead, specific Volvo dealers will spend more. If there are many dealers in a specific area, each individual dealer has less of an incentive to spend on advertising because each dealer will not reap all the benefits of the advertising.

“What he’s getting to is the bottom of that relationship: who does how much in terms of the advertising,” Anderson said.

What happens if a dealership closes? Such a turn of events can be good for the manufacturer, Murry’s research found. If, say, there are five Chrysler dealers in a city and two close, the manufacturer will typically cut advertising spending, because there are now fewer dealers, each with a larger share of the market.

Murry’s focus on advertising makes his dissertation unusual – and refreshing, his professors say. “There’s a large literature that ignores advertising,” said Steven Stern, Merrill Bankard Professor of Economics.

Many economists focus only on price decisions. Murry, in contrast, developed a “conceptual framework” to study not just pricing, but also advertising, Anderson said.

His methodology included a rich data set. “He’s figured out how much was spent by the dealers, how much by the manufacturers,” Anderson said.

Between playing the bass and researching advertising decisions, Murry makes time to assist his fellow graduate students. His mentors have taken note of his collegiality.

 “Charlie’s very generous to his fellow grad students,” Stern said. “My sense is that he helped many of them a lot, and he also was instrumental in organizing a reading group, which is still going on, where once every two weeks we get together and talk about a paper we’ve all agreed to read ahead of time.”

Federico Ciliberto, an associate professor of economics and another of Murry’s advisers, said he expects his student to flourish in academia. “He has an element of self-awareness that’s unusual at that age,” Ciliberto said. “I think he has enough fire in the belly to stay working very actively in academics.”