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Search, Obfuscation, and Price Elasticities on the Internet
Abstract
Andrew Sweeting for outstanding research assistance. We also thank Patrick Goebel for a valuable tip on Internet data collection, Steve Ellison for sharing substantial industry expertise, and Drew Fudenberg for his comments. This work was supported by NSF grants SBR-9818524 and SES-0219205. The first author’s work was supported by fellowships from the Center for Advanced Study in the Behavioral Sciences and the Institute for Advanced Study. The second author’s work was We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation—practices that frustrate consumer search or make it less damaging to firms—resulting in much less price sensitivity on some other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.
... In our case, as we move from local markets to virtual markets, the frictions associated with regional variations in pricing are no longer relevant considerations. However, Ellison and Ellison (2009) indicate that the potential for obfuscation to exist in online markets is still a relevant concern. They contend that in an online search market when search costs increase the result of the search becomes less complete; therefore, price dispersion could persist even in an online market. ...
... They contend that in an online search market when search costs increase the result of the search becomes less complete; therefore, price dispersion could persist even in an online market. Baye, Morgan, and Scholten (2004) highlighted research by Brynjolfsson and Smith (2000) and an early version of Ellison and Ellison (2009), which indicated that there were significant disparities in price dispersion across markets at that time. Specifically, Brynjolfsson et al. (2000) found price dispersion between homogenous products was as much as 30% in markets for books and CDs, but a little later Ellison et al. (2009) only find price dispersion of 5% in their analysis of sales of computer memory products, which leads them to question whether this disequilibrium in prices is decreasing over time. ...
... Baye, Morgan, and Scholten (2004) highlighted research by Brynjolfsson and Smith (2000) and an early version of Ellison and Ellison (2009), which indicated that there were significant disparities in price dispersion across markets at that time. Specifically, Brynjolfsson et al. (2000) found price dispersion between homogenous products was as much as 30% in markets for books and CDs, but a little later Ellison et al. (2009) only find price dispersion of 5% in their analysis of sales of computer memory products, which leads them to question whether this disequilibrium in prices is decreasing over time. In their analysis of the pricing of a 1,000 products purchased over 'Shopper.com,' ...
This case study illustrates how the price discovery process in a shrouded add-on market may be inefficient and may not force suppliers to price their products efficiently. Using 30 daily observations of the pricing of SquareTrade and Asurion's office product insurance protection policies, sold through Amazon, we were able to illustrate how typical pricing errors are in these markets and the magnitude of these pricing errors. In addition, using standard statistical tools like means-testing and regression analysis, we were able to validate that the pricing errors were statistically significant and remove those errors to illustrate what the pricing of these contracts should look like without the errant pricing. Finally, we illustrate how the price of these contracts follow the 'bathtub effect' and provide some suggestions as to why these pricing errors exist for an extended time.
... I begin with a literature review where, following Ellison and Ellison (2009) and Chiles (2017), I use the term "price obfuscation" as a catchall phrase to cover the various forms of pricing and marketing strategies referred to across disciplines that inhibit consumers from choosing the best price. I then analyse instances of price obfuscation that the ACCC has uncovered in Australia in the context of information asymmetry, search costs, and behavioural industrial organisation frameworks and discuss the potential "unintended consequences" that the literature warns of when these remedies are deployed without considering the interactions between the underlying theories of the frameworks. ...
... This is despite papers such as Gabaix and Laibson (2006) and Carlin (2009) identifying information suppression as a primary obfuscation tactic, and Stigler (1961) noting that price dispersion is a "manifestation" and "measure" of price information ignorance. Following Stigler (1961), search cost models are cited by the foundational price obfuscation research (Ellison, 2005;Ellison & Ellison, 2009;and Carlin, 2009), with some facets of information asymmetry appended to the analysis. ...
... Importantly these results only hold when search cost (Ellison, 2005) and behavioural (Ellison, 2005;Gabaix & Laibson, 2006;and Spiegler, 2006) frameworks are incorporated into the analysis. Ellison and Ellison (2009) found direct evidence in support of Ellison's (2005) proposition that shrouded add-on charges can lead to an adverse selection problem by examining an online marketplace for computer RAM modules. Using calculated elasticities of demand for various qualities of RAM they quantitatively demonstrated that a decrease in price for the lowest quality of RAM decreased the fraction of consumers who chose to upgrade (Ellison & Ellison, 2009). ...
Price obfuscation refers to various forms of pricing and marketing strategies that inhibit consumers from choosing the best price for goods. Competing theoretical frameworks of information asymmetry, search costs and behavioural industrial organisation suggest that obfuscation is a rational pricing strategy for firms under a number of assumptions and that it can temper the effects of firm entry and increased competition. Accordingly, the Australian Competition and Consumer Commission has deemed price obfuscation an enforcement priority in 2019 having found evidence of obfuscation in the Australian retail electricity and mortgage markets. Whether obfuscation can be addressed through existing competition and consumer protection laws, or pricing policies, is a question I attempt to answer throughout the research. In this research I conduct an extensive survey of the prior literature, and make significant contributions to the field by; firstly identifying the correlation between the information asymmetry, search cost and behavioural industrial organisation obfuscation frameworks; then explicitly assessing obfuscation under information asymmetry a process which to my knowledge has not previously been conducted; and finally, developing a generalised policy framework suitable for use in both New Zealand and Australia. Additionally, I identify significant gaps in the theoretical and empirical literature that have hampered the assessment of consumer welfare and competition impacts.
... 2 The reality of digital markets in 2020 is a far cry from economists' 1999 daydreams of perfect competition. With the possible exception of markets for homogenous products, such as the memory modules in Ellison and Ellison (2009) , the market structures of the digital economy have been far from perfectly competitive. 3 Online retailing is dominated by Amazon. ...
... Bing, the distant second place search 1 For example, Brown and Goolsbee (2002) described a "traditional economic view" according to which "the Internet should reduce search costs for consumers and thereby reduce prices and make markets more competitive." See also Brynjolfsson and Smith (20 0 0) , who examined claims of a frictionless internet and conclude that "while there is lower friction in many dimensions of Internet competition, branding, awareness, and trust remain important sources of heterogeneity among Internet retailers." 2 While not the main point of their paper, Ellison and Ellison (2009) document own price elasticities for low quality memory modules of −20 or more at the search engine site Pricewatch, noting that firms engage in obfuscation tactics to boost their profit margins. ...
... By whatever means, the intent of strategic obfuscation is to raise search costs, thereby creating opportunities for margin expansion (Stigler 1961). Strategic obfuscation takes many forms, from creating slightly different versions of the same product (e.g., Ellison 2005, Gabaix and Laibson 2006, Ellison and Ellison 2009) to creating confusion in how prices are reported to consumers (e.g., Carlin 2009, Wilson 2010, Wilson and Price 2010, Chioveanu and Zhou 2013, Muir et al. 2013), or to the personalized pricing examples discussed above. In this paper, we focus on a particular type of strategic obfuscation, namely, the purposeful action taken by a price-discriminating seller to prevent buyers from observing prices offered to other buyers for the same good. ...
... There is some empirical evidence that strategic obfuscation can be profit enhancing under the right circumstances. In the context of online shopping, Ellison and Ellison (2009) show that price obfuscation strategies, such as not showing the retail price in the search results, can yield higher equilibrium profits because they give more monopoly power to firms by increasing search frictions and making consumers less informed. Similarly, Blake et al. (2017) document that obfuscation of shipping and handling fees led to a revenue boost for StubHub.com. ...
Personalized prices affect fairness concerns, and firms have incentive to invest in technology that obfuscates prices and mitigates consumers’ fairness concerns.
... Thus, some online stores, which may have goods of better quality, are excluded from the list the consumers obtain. Ellison and Ellison (2009) proved that internet searches in general and shopbots, in particular, affect not only online commerce but also the "brick and mortar" industries such as car manufacturers or airlines. ...
... This fee could be calculated on a cost per click model or other provision models. Ellison and Ellison (2009) conducted a study where they noticed that shopbots are the key element of online stores environment. Shopbots can help consumers decide what to buy and enhance their shopping experience (Fasli, 2006). ...
Purpose
This paper aims to consider the question of changes brought to consumers’ trust and security issues by the implementation of the General Data Protection Regulation (GDPR) in electronic commerce.
Design/methodology/approach
Online shopping policies in Poland and Ukraine are compared from the perspective of four factors as follows: application of terms of service and privacy policy, usage of online payment systems, presence in price comparison engines and grade of secure sockets layer security certificates. Comparison is conducted within the framework of three research questions (complemented by eight hypotheses) set to reveal whether: policies of personal data protection and server security for online stores in both countries are the same; all online stores in both countries obey the existing e-commerce rules; e-commerce policies in the two countries differ significantly. The sample for analysis contains 40 Polish and 40 Ukrainian online stores, representing four industries, namely, electronics, entertainment, fashion and goods for children.
Findings
The research allowed to reveal major differences in the privacy policy of the two countries, caused, mainly, by the absence of GDPR in Ukraine. It also disclosed much stronger cooperation of online stores and price comparison engines in Poland compared to Ukraine. At the same time, research results allow to state that server security in both countries is on the same rather high level and that online stores use transparent and safe methods of online payment.
Research limitations/implications
This research opens a way to other, expanded observations which will include more countries and larger scopes of data. Its main limitation is that GDPR influence is only studied in two countries, not in all countries where it is implemented.
Originality/value
This research contributes from security and trust perspectives by analyzing the situation in two countries as follows: the EU member (Poland) and a non-EU country (Ukraine). The value of exploring the situation of Ukrainian e-commerce consists of understanding how online stores function without implementing the GDPR. Observation of shopbots application allows drawing an important conclusion of the necessity for online stores to cooperate with such services. It was also revealed that consumers’ trust in both countries depends a lot on the payment methods applied by an online store and on the ease of use of these methods.
... Strategic obfuscation implies that sellers may adopt strategies that are intended to prevent price comparison among a set of identical, or at least readily substitutable, products (Ellison & Wolitzky 2012). For example, insurance providers tend to provide subtly different contract terms in order to prevent consumers from comparing the true coverage per dollar of premium among firms, and online vendors often require the user to click through several web pages before discovering the real price of an item (Ellison & Ellison 2009). ...
... In the price-obfuscation literature, there are two types of obfuscation: (a) adding attributes to obscure the true nature of the product (Gabaix & Laibson 2006, Ellison & Ellison 2009) and (b) making the pricing structure itself sufficiently complex that consumers have difficulty determining the true price (Carlin 2009, Wilson 2010. 3 If interpersonal price comparisons do indeed represent a significant barrier to a firm's ability to price-discriminate, then preventing price transparency represents another potential source of market power. ...
Studies examining pricing outcomes in the food retail industry are complicated both by the multiproduct nature of transactions and by the presence of highly concentrated food processing and retailing industries that mediate between relatively competitive farm product markets and the consumer market. In this review, we examine theoretical and empirical evidence for retail pricing and the vertical relationships that have emerged among retailers, food manufacturers, and farmers. We first focus our analysis on consumer behavior in multiproduct retail markets, including consumer search, habit formation, and reference pricing, and then discuss retail market outcomes for price discrimination, price fairness, and price obfuscation. We then turn to relationships between retailers and food manufacturers through bargaining outcomes, market foreclosure, and slotting allowances, and discuss the resulting implications for retail-price pass-through.
Expected final online publication date for the Annual Review of Resource Economics, Volume 12 is October 5, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
... Two papers in the existing literature (Ellison and Ellison 2009;Yoon and Heo 2017) lend support to our estimated cross price elasticities of discretionary spending on attending live sporting events and the price of exercise. Yoon and Heo (2017) report cross-price elasticity estimates in the 4-5 range for spending on "sports and recreation" (which includes components in our attending sporting events and exercise and physical activity categories) and "cinema, exhibition, and performing arts" (which includes live performing arts and cinema). ...
... Yoon and Heo (2017) report cross-price elasticity estimates in the 4-5 range for spending on "sports and recreation" (which includes components in our attending sporting events and exercise and physical activity categories) and "cinema, exhibition, and performing arts" (which includes live performing arts and cinema). Ellison and Ellison (2009) report estimates of cross price elasticities as large as 11-12 from the market for computer memory. These cross price elasticities are in line with the estimates reported in this paper. ...
We use data from the Canadian Survey of Household Spending to analyze the relationship between household consumption of four categories of leisure goods and services: sports betting, exercise, watching television, and attending live sporting events. Spending on exercise can affect household health. Recent policy changes expanded access to legal sports betting. Clear theoretical links exist among all four categories. Results from AIDS/QUAIDS models show that household consumption of these leisure goods and services are substitutes, except for attending sporting events and watching television, which are complements. These results have important implications for both health and gambling policy.
... Once the script is written, it is up to the user whether it should run and extract prices and other data monthly, weekly, daily or even at a higher frequency (e.g. hourly, as done by Ellison and Ellison, 2009). For food price research, daily data are probably sufficient for most applications. ...
... No longer having to deal with menu and search cost, which are commonly used to explain why the law of one price[2] does not hold, there is hope that online prices allow for new insight regarding price transmission and conversion (Gorodnichenko et al., 2018). Some empirical studies have shown that online prices change more frequently, and in smaller magnitude, than offline prices (Brynjolfsson and Smith, 2000;Ellison and Ellison, 2009). However, these data were collected on marketplaces such as eBay or price comparison tools (Google Shopping), which may not be representative of overall online retail because online retailers are heterogeneous in their characteristics and price setting (Einav et al., 2018;Pan et al., 2002). ...
Purpose: The purpose of this paper is to discuss web scraping as a method for extracting large amounts of data from online sources. The author wants to raise awareness of the method's potential in the field of food price research, hoping to enable fellow researchers to apply this method.
Approach: The author explains the technical procedure of web scraping, reviews the existing literature, and identifies areas of application and limitations for food price research.
Findings: The author finds that web scraping is a promising method to collect customised, high-frequency data in real time, overcoming several limitations of currently used food price data sources. With today's applications mostly focussing on (online) consumer prices, the scope of applications for web scraping broadens as more and more price data are published online.
Research implications: To better deal with the technical and legal challenges of web scraping and to exploit its scalability, joint data collection projects in the field of agricultural and food economics should be considered.
Originality: In agricultural and food economics, web scraping as a data collection technique has received little attention. This is one of the first articles to address this topic with particular focus on food price analysis.
... By defining and analyzing DPF, a pricing technique that makes the price difference associated with premium products more salient, we make four main contributions to the literature. First, this research adds a new branch to the rich literature on price presentation formats (e.g., price partitioning [Abraham and Hamilton 2019;Greenleaf et al. 2016], add-on pricing [Ellison and Ellison 2009]). Second, the research highlights the benefit of going beyond the standard mental accounting explanation of the benefits of product bundling (e.g., Thaler 1985;Thaler and Johnson 1990), which relies on the curvature of the utility function to explain the value of bundled prices and instead highlights the importance of understanding a consumer's perception and representation of price information. ...
... In the extreme case, some consumers completely ignore the cost of the partitioned elements when determining bundle value (Gabaix and Laibson 2006;Morwitz, Greenleaf, and Johnson 1998). A related literature stream on add-on pricing (and its drip pricing extension) shows that consumers' purchase decisions are often driven by low base prices, even when high prices for add-ons such as mandatory printer ink make the purchase uneconomical (Ellison and Ellison 2009). Essentially, add-on pricing takes advantage of consumers' "myopic" focus on up-front payments rather than downstream costs. ...
Four experiments supported by six supplemental studies show that premium but higher-priced products (e.g., direct flights, larger-capacity data storage devices) are more popular when the additional cost is made explicit using differential price framing (DPF; e.g., “for 60 total”). The DPF effect is driven by pricing focalism: relative to IPF, DPF creates a focus on the price difference, which, because it is smaller than the total price, leads to lower perceived expensiveness and thus greater choice share for the premium option. This price framing effect is robust to displaying the total cost of the purchase, bad deals, and easy-to-compute price differences, and it appears to be uniquely effective in pricing contexts. However, DPF effects are reduced among consumers who adopt a slow and effortful decision process. These findings have implications for research on price partitioning, the design of effective pricing strategy, the sources of expensiveness perceptions in the marketplace, and consumer welfare.
... Then, in the buying decision, consumers trade-off a lower price with a higher reliability of the retailer. Ellison and Ellison [38] examined the competition between groups of e-tailers operating in an environment where a price search engine played a dominant role. They found that advances in search technology were accompanied with investments by e-tailers in search traffic from shop-bots. ...
... Examples of price comparison websites in various countries include: Ceneo in Poland; Idealo in Germany; PriceRunner in Denmark; and KuantoKusta in Portugal [37]. Price comparison websites may agree to include products from foreign online shops in their offer [38]. Usually, these websites require the ability to deliver to the country in which the website is operating, or at least for the shop's website to be available in English. ...
This study attempts to determine the most important features of e-tailer shops regarding their adaptation of cross-border e-commerce. The open market in the European Union (EU) encourages consumers to make cross-border purchases. The aim of the paper is to determine which features are important for customers and should therefore be taken into consideration by e-tailers when providing their services. The paper is based on a study conducted in Poland. Polish e-commerce stores are broadening their market opportunities to other European countries. The study included 30 Polish e-tailers from the household goods sector (e.g., TVs, computers, washing machines, etc.). The theory is grounded in online shopping and website analysis. The author found that not all key features of e-tailer shops in the observed industry sector were developed in websites; some online shops lacked these features. A limitation is that the observation was conducted in only one country and industry sector. However, the sector studied represents the majority of online shops and the industry was the subject of the study. Research shows which features of online shops are important for customers who make cross-border e-commerce. Originality and contribution are based on the identification, analysis, and results of the features to adjust in the European cross-border e-commerce.
... It finally fostered a re-appraisal of a range of economic ideas, as well as the emergence of new ones (Ellison and Fisher Ellison, 2005). For example, research into online pricing led to a re-examination of the link between reduced search costs and lower prices (Ellison and Fisher Ellison, 2009). Internet auctions provided new insights in terms of mechanism design and into the impact of limited rationality in individual decision-making (Bajari and Hortaçsu, 2004). ...
... Zum Beispiel führten Untersuchungen der Online-Preise zu einer erneutenÜberprüfung des Zusammenhangs zwischen reduzierten Suchkosten und niedrigeren Preisen (Ellison and Fisher Ellison, 2009). ...
This habilitation deals with the impact of the Internet in three main domains of economic activity: How the Internet facilitates consumer search in consumer markets, fosters the formation of social networks, and enables new forms of organization for collaborative projects.
... The link between search costs, brand loyalty and customer engagement has been extensively studied in game theory (Agrawal, 1996;Kuksov & Zia, 2020) and empirical applications (De Los Santos et al., 2012;Ellison & Ellison, 2009). Recent game theory research has focused on how influencers provide product information to customers (Kuksov & Liao, 2019;Nistor & Selove, 2021). ...
Consumers use social media to create content, generate online word-of-mouth, and communicate with brands and other consumers. Consumers engage with influencers who deliver content that is timely, entertaining, and interesting to them. Many influencers have a truly global following across the world. However, there is little research on international aspects of social media influencers. Our paper leverages Hofstede's cultural dimensions to study consumer engagement using a novel dataset of global sustainability influencers. Our results indicate that the cultural distance between the influencer and the followers is an important driver of engagement in a nuanced way. While the level of superficial, light engagement is not affected by the cultural distance between an influencer and her followers, the level of deep engagement increases when an influencer and her followers are culturally close. The effect is more pronounced for followers in countries where environmental concerns are considered more important.
Video Abstract: https://drive.google.com/file/d/1s2rQN-KxCUUjPC9FMGMFbp7puFCInIzK/view?usp=sharing
... This possibility is consistent with evidence by Ellison and Ellison (2009), who document that sellers on a price-comparison website charge add-on prices that only become apparent once the 2 Bolstering the above is evidence from experiments in which the financial costs of search are induced to be linear, yet subjects' behavior exhibits patterns characteristic of convex search costs (Kogut, 1990, Brown et al., 2011. A natural explanation is that subjects have a convex subjective cost of time. ...
We identify a competition-policy-based argument for regulating the secondary features of complex or complexly-priced products when consumers have limited attention. Limited attention implies that consumers can only “study” a small number of complex products in full, while—by failing to check secondary features—they can superficially “browse” more. Interventions limiting ex-post consumer harm through safety regulations, caps on certain fees, or other methods induce consumers to do more or more meaningful browsing, enhancing competition. We show that for a pro-competitive effect to obtain, the regulation must apply to the secondary features, and not to the total price or value of the product. As an auxiliary positive prediction, we establish that because low-value consumers are often more likely to study—and therefore less likely to browse—than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. We discuss applications of our insights to health-insurance choice, the European Union’s principle on unfair contract terms, food safety in developing countries, and the shopping behavior of (and prices paid by) low-income and high-income consumers.
... can increase this price above that of competitors, a characteristic sometimes referred to as "shrouded attributes" (Ellison andEllison, 2009, Gabaix and. Generally, the choice architecture can determine whether prices and other product attributes are immediately visible and salient or hidden from sight, which influences how easy or difficult it is to find the relevant information. ...
Behavioural scientists have begun to research "sludge", excessive frictions that make it harder for people to do what they want to do. Friction is also an important concept in transaction-cost economics. Nevertheless, sludge has been discussed without explicit referral to transaction costs. Several questions arise from this observation. Is the analogy to friction used differently in both literatures? If so, what are the key differences? If not, should we develop the concept of sludge when the well-established literature on transaction costs already exists? This paper shows that sludge and transaction costs are related, but distinct concepts, and that the literature on sludge can benefit from incorporating elements from transaction-cost research. For example, we suggest defining sludge as aspects of the choice architecture that lead to the experience of excessive or unjustified costs, organise sludges using a typology inspired by the transaction-cost literature and show that sludge audits can be conducted using methods developed in the transaction-cost literature.
... We assume that consumers ex ante do not know p i because, in practice, many online sellers do not immediately show a specific product's final transaction price to a consumer until she visits the product pages or the product is added to the shopping cart. For example, Ellison and Ellison (2009) document that many online sellers of computer parts on retail platforms post low prices to attract consumers to visit their product pages and show consumers the shipping-andhandling cost, taxes, or add-on fees later on. The final transaction price can be much higher than the posted price that consumers see initially. ...
This article examines how the consumer’s search cost and filtering on a retail platform affect the platform, the third-party sellers, and the consumers. The authors show that, given the platform’s percentage referral fee, a lower search cost can either increase or decrease the platform’s profit. By contrast, if the platform optimally adjusts its referral fee, a lower search cost will increase the platform’s profit. As the consumer’s search cost decreases, if the platform’s demand elasticity increases significantly, the platform should reduce its fee, potentially resulting in an all-win outcome for the platform, the sellers, and the consumers; otherwise, a lower search cost will increase the platform’s optimal fee percentage, potentially leading to higher equilibrium retail prices. Furthermore, the availability of filtering on the platform will in expectation induce consumers to search fewer products but buy products with higher match values, and filtering can either increase or decrease equilibrium retail prices. When filtering reveals only a small amount of the products’ match-value variations, it will benefit the platform, the sellers, and the consumers. This article shows that the effects of filtering and those of a decrease in search cost are qualitatively different.
... Various forms have been analyzed in the literature, for example, add-on pricing and loss-leader pricing. The former occurs when the base price for a product is advertised with the goal of selling additional "add-ons" at higher prices at the point of sale (Ellison, 2005;Ellison & Ellison, 2009). For example, the quoted price for a hotel room typically does not include dinner or other services. ...
Our article deals with pricing strategies in Swiss health insurance markets and focuses on the relationship between basic and supplementary insurance. We analyzed how firms' pricing strategies (i.e., pricing of basic and supplementary products) can create switching costs in basic health insurance markets, thereby preventing competition in basic insurance from working properly. More specifically, using unique market and survey data, we investigated whether firms use bundling strategies or supplementary products as low‐price products to attract and retain basic insurance consumers. To our knowledge, this is the first paper to analyze these pricing strategies in the context of insurance/health insurance. We found no evidence of bundling in the Swiss setting. We did however observe that firms used low‐price supplementary products that contributed to lock in consumers. A majority of firms offered at least one of such product at a low price. None offered low‐price products in both basic and supplementary markets. Low‐price insurance products differed across firms. When buying a low‐price supplementary product, consumers always bought their basic contract from the same firm. Furthermore, those who opted for low‐price supplementary products were less likely to declare an intention to switch basic insurance firms in the near future. This result was true for all risk category levels.
... These models also explain our results obtained for products characterized by low visibility (quality). Indeed, the willingness to engage in search activity could indirectly identify those customers whose demand is more rigid, as argued by the search literature (Ellison and Ellison, 2009). ...
Underlying this doctoral thesis is the growing importance of the study of the
relationship between cause and effect. This relationship can relate to policies, events,
actions and processes. The analysis of causal relationships has developed over many
years and still remains a central issue today. Indeed, in economics, the measurement
of a particular causal effect is often one of the objectives of empirical analyses.
When researchers are unable to conduct a randomized controlled experiment, they
must necessarily rely on the observation of non-experimental data, i.e. data from the
real world, as is the case with sample surveys for example. A major problem in the
use of this data arises from the fact that they are not derived from an experiment
specifically designed for the purpose. Therefore, there may be variable factors whose
effects are difficult to separate from the specific treatment effect.
The group of statistical techniques which have been developed for the assessment
of causal effects from non-experimental data is therefore a very important field of
applied econometrics.
In this dissertation, I will face the the relationship between cause and effect and
several impact evaluation methods, presenting a collection of three applications of
these techniques, adapted from three different works:
- “Price Matching and Platform Pricing”, presented at the First NetCIEx Workshop
(EU Joint Research Centre - Ispra);
- “Roads to Innovation: Evidence from Italy”, presented at the First NetCIEx
Workshop (EU Joint Research Centre - Ispra);
- “Public Funded R&D as a Device for Local Innovation? Evidence from Italian I.I.T.
Foundation”.
In the first paper, the effects of Price Matching Guarantees (a PMG refers to the
price strategy where different retailers commit themselves to match any lower price
offered by competitors on the same item or product category) on U.S. online consumer
electronics prices are empirically investigated, by means of a unique dataset developed
through sophisticated and computerized scraping procedures.
In such paper, joint use of daily price data, product characteristics derived from
User Generated Contents (UGC) and the construction of a control group with a novel
approach allow to implement a Difference-in-Difference analysis, aimed to assert the
existence of a causal effect of PMG on prices.
The paper finds evidence in favor of price reductions occurring after the PMG policy is
repealed. The analysis further investigates if such effect is heterogeneous according
to products characteristics, by exploiting UGC (products popularity and quality) and
online search visibility measures (Google Search Rank). Estimates suggest that for
high quality (visibility) products PMG policies harms competition by keeping prices
high, while for low quality (visibility) products, prices decrease during the policy
validity period.
The second article deals on the literature on the economic impact of transport
infrastructure, and in particular on the role that road infrastructure can have on
innovative regional capacity.
The seminal contribution by Agrawal et al. (2017) is followed to estimate a model of
"roads and innovation" where the innovative activity in 1988 is linked to the length of
motorways system in 1983, in order to investigate the impact of motorways endowment
on the innovative capacity in each Italian NUTS-3 region. The main challenging issue
about the estimation of the model arises from the possible endogeneity of highways
stock. To deal with this problem, the "historical instrumental variable" approach is
followed, by using the length of the ancient Roman roads system dating back to 117
AD as an instrument for the length of current motorways.
Overall, the Instrumental Variable estimates indicates that 1983 highways network
has a positive and significant impact on 1988 innovative capacity. Moreover, the
analysis find a declining role for highways over time. Furthermore, results suggest a
spatial reorganization of economic activity rather than a pure net economic effect.
The third paper concludes this dissertation. In such final analysis, the effects
on the regional economy of a prominent Italian place-based policy, the institution
of Istituto Italiano di Tecnologia (Istituto Italiano di Tecnologia, IIT, is a scientific
research centre established in 2003 that conduct scientific research in the public
interest), are investigated by means of a novel identification strategy, the Synthetic
Control Method (SCM).
Such identification approach, unlike other counterfactual impact evaluation techniques,
is based on the creation of an artificial control unit that not only follows the
same pre-treatment trend as the treated unit, but even overlaps the same one. In
particular, through the SCM approach, the innovative and economic development
(measured by patents per capita, number of local inventors and per capita GDP) of
the treated region, namely Genoa, is compared with a set of Italian NUTS-3 control
regions with the aim to estimate the causal effect of the location of IIT in 2006.
Estimates show significant effects of IIT presence on local patent activity, highly
specialised human capital endowment in research and GDP per capita, suggesting
the existence of local spillovers from public research.
... If g a (0) is low, there are only few such consumers. Thus, consistent with empirical observations (Ellison and Ellison, 2009), obfuscation is an effective means to lower price elasticities and increase markups if either tastes are indecisive or obfuscation can become massive (e.g., because products are near to homogeneous). ...
Do firms seek to make the market transparent,or do they confuse the consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences.
... Research has shown that if customers learn about the shipping options after incurring the search cost, they become less sensitive to the shipping price (Dinlersoz and Li 2006). Driven by this fact, several studies have proposed strategies to mitigate consumer price sensitivity by hiding or delaying valuable information to lock customers in to a purchase (Baye and Morgan 2001, Ellison and Ellison 2009, Moon et al. 2018. However, such strategies may lead to negative outcomes because the lack of availability of shipping information in early stages is one of the main reasons why consumers abandon their shopping carts. ...
Online retailers have to provide customers with an estimate of how fast an order can be delivered before they purchase it. This delivery speed promise is what online retailers can strategically adjust at almost no cost but what may fundamentally impact business outcomes. It influences consumers' purchasing decisions and post-purchase experiences, often in the opposite direction. On one hand, an aggressive (i.e., faster) delivery estimate could assure more customers of meeting their deadlines and thus may increase their purchases ex-ante. On the other hand, an aggressive estimate tends to overpromise customers, risking a longer than expected wait time, which can lower customer satisfaction and increase product returns ex-post. In this research, we study the causal effect of retailers' delivery speed promise on customer behaviors and business performance. Collaborating with Collage.com, an online retailer that sells customized photo products, we co-designed its new shipping policy. We exogenously varied the disclosed delivery speed estimates across cities while keeping the physical delivery speed unchanged. Using a difference-indifferences identification and a dataset with 212,340 transactions in 7,090 cities, we find that a one-day faster promise increases sales by 0.73%, profits by 2.0%, and value per order by 3.5%; a one-day slower promise reduces sales by 0.51%, profits by 2.7%, and value per order by 3.1%. However, the aggressive disclosure increases product returns. Retailers could leverage our insights to customize delivery promises for certain products or customers.
... 4 Throughout the paper, we use the term obfuscation to refer to the cartel's manipulation of consumer awareness sets. This choice of language is in the spirit of Ellison and Ellison (2009) who use the term to refer to the manipulation of rationally optimising consumers subject to search frictions. ...
We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves price cycles that resemble Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern.
... Overall, the literature stresses the importance of the choice context for the weights consumers put on different product attributes. attributes when choosing within this set (see, e.g., Ellison and Ellison, 2009;Eliaz and Spiegler, 2011;de Clippel, Eliaz, and Rozen, 2014;Hefti and Liu, 2016). ...
In various countries, competition laws restrict retailers' freedom to sell their products below cost. A common rationale, shared by policymakers, consumer interest groups and brand manufacturers alike, is that such “loss leading” of products would ultimately lead to a race‐to‐the‐bottom in product quality. Building on Varian's (1980) model of sales, we provide a foundation for this critique, though only when consumers are salient thinkers, putting too much weight on certain product attributes. But we also show how a prohibition of loss leading can backfire, as it may make it even less attractive for retailers to stock high‐quality products, decreasing both aggregate welfare and consumer surplus.
... In Australia, it was estimated that excess costs from being on the wrong contract were around $A1.5 billion annually (Australian Communications and Media Authority [ACMA] 2015). With regard to online shopping, Ellison and Ellison (2009) document how internet retailers benefit from price obfuscation. Evidence from electricity markets shows that consumers facing nonlinear price schedules respond to the average price rather than the marginal price due to lack of understanding of the pricing scheme (Kahn and Wolak 2013;Ito 2014). 2 In this article, we use a laboratory experiment to compare the effectiveness of five different regulatory interventions as means for improving consumer decisions in the context of complex multidimensional pricing schemes. ...
Considerable evidence demonstrates that consumers make poor choices when facing complex multidimensional pricing schemes. The problem is clear but appropriate regulatory interventions less so. We study the efficacy of five different interventions to improve consumer decision making in an experimental context where subjects choose among a set of predefined phone plans involving nonlinear tariffs. We compare two types of intervention: information provision and consumer literacy training. We find that training about plan costs significantly improves decision quality, while providing information about plan value assists inexperienced decision makers, and visual feedback helps experienced decision makers. Implications for policy are discussed, mindful of heterogeneous consumer literacy and the infrequency with which consumers are actually “in the market” for a better phone service plan.
... Scholten and Smith [2], for example, reported that the coefficient of variation (namely, the ratio of the standard deviation to the mean) of consumer good prices ranges from 1.6% to 20.7%. Some buyers might end up paying more than the lowest possible price because of information asymmetry, local monopoly, demand inelasticity or higher search costs, among other reasons [3,4]. ...
Generic pharmaceuticals should have very little price dispersion. Economics’ Law of One Price suggests that identical goods, in the absence of trade frictions and under conditions of free competition and price flexibility, should sell for the same price, and the FDA ensures that generics are identical. In this study, we examine whether generic pharmaceuticals indeed have the low price dispersion that theory predicts, and if not, whether the dispersion seen for pharmaceuticals used to treat neuropsychiatric conditions is substantially higher than that of other drugs. Such a difference may offer an explanation for the price dispersion seen: namely, a strategy that takes advantage of buyers’ cognitive constraints and impaired ability to comparison shop. We thus assembled a list of generic pharmaceuticals and their prices using www.GoodRx.com, based on a convenience sample of the 5 most popular drugs for 10 common medical conditions listed there. Three neuropsychiatric diagnoses were used: Alzheimer's disease, depression and schizophrenia. Seven other diagnoses served as controls: asthma; diabetes mellitus-type II; high cholesterol; hypertension; osteoarthritis; osteoporosis; and urinary tract infection. For each drug, we identified the highest and lowest prices and calculated the mean, median and coefficient of variation (CV). We further calculated the ratios of the highest price to the median price and of the highest to lowest price. We found that the mean price CV was 43%. For neuropsychiatric drugs and controls, it was 61% and 35%, respectively. The mean high-to-median ratio was3.7 for neuropsychiatric drugs and 1.9 for controls. The mean high-to-low ratio was 5.9 for neuropsychiatric drugs and 2.8 for controls. In short, generic medications have high price dispersion, despite public availability of prices. Although our study did not examine why this price dispersion is present, the especially large high-to-low price ratio for neuropsychiatric medications suggests a strategy that exploits vulnerable patients.
... This chapter is thus related to the literature on signal-jamming and obfuscation (Holmström, 1999;Ellison and Ellison, 2009). This chapter is also related to the burgeoning literature about how the commitment assumption in Bayesian Persuasion can be relaxed or micro-founded (Best and Quigley, 2017;Margaria and Smolin, 2017). ...
The three essays of my PhD thesis study theoretical issues of Information Design and their applications in Political Economy and Finance. Those essays aim to understand that in various economic and political situations, how an informed party can design information structure that another party faces and thus shape that party’s action for the informed party’s own interests. By working on those issues, those essays aim to provide more insights on how information sender’s incentives shape different levels of information quality, and how various variables of interest, including social welfare, are affected. The first chapter studies in international disputes, how a government can get concessions from another government by encouraging its own people to protest against the foreign government. By choosing different levels of propaganda, a government not only affects the probability of protests happening but also the informativeness of protests. This chapter sheds more light on a government’s optimal nation-building strategy, and also which kinds of countries can benefit most from stirring anti-foreign protests. The second chapter studies the optimal information design problem in a financial market. A security issuer designs a signal to persuade an investment bank to underwrite, taking as given that there is a secondary market. This chapter shows that the existence of demand shock would lead to worsening of information quality in the primary market. The third chapter studies that in a moral-hazard environment, how a principal can optimally design the information environment that the agent faces. This chapter shows how a principal can optimally combining providing information and pecuniary incentives to incentivise an agent to exert effort. It also generates some testable predictions about how the quality of equilibrium information structure is affected by factors such as cost of effort and noisiness of production technology.
... We contribute to this stream of research by considering the optimal search problem of the consumer in a store environment and how this affects the retailer's product allocation strategy. Work on price obfuscation and retail strategies to increase search frictions is also related to ours (Ellison and Ellison 2009;Ngwe et al. 2019). Such work focuses on how obfuscation allows retailers to price discriminate heterogeneous consumers, by discouraging less price sensitive ones from further search, leading them to buy more expensive products. ...
With few exceptions, today’s retailers sell products across multiple categories. One strategic consideration of such retailers is product location, which determines how easy or difficult different categories are for customers to access. For example, grocery or department stores determine which products will be located closer to the entrance of the store versus at the back of it, while online retailers decide which products to feature on the homepage, and which will require scrolling or keyword search to get to. In this paper, we study how a retailer should optimally locate products within a store, when the locations chosen affect consumer search costs. We show that the retailer has an incentive to prioritize products with lower utility, contrasting with prior work. The intuition for our result is that the consumer may be willing to search less preferred products only at the lower cost, while the more preferred products will be searched even at higher search costs. This strategy benefits the retailer by increasing the number of products the consumer searches and thus, the ones she may buy. Our finding is robust to several extensions: (i) a retailer determining not only product locations, but also prices, (ii) independent (e.g. categories), as well as substitute products, and (iii) a focal retailer that faces competition. From a managerial perspective, we show that allocating products in the store without taking into account how this affects consumer search costs, might mean consumers overlook products they would otherwise purchase.
... Therefore, firms lack incentives to draw attention to or otherwise compete on prices of overdrafts (an add-on for banks). Ellison and Ellison (2009) provide further evidence on the profitability of add-on pricing as an obfuscation strategy frustrating a consumer's search. Furthermore, consumers are found to underreact to monetary costs that are not salient, as shown by Chetty et al. (2009) in a study looking at the effect on demand when taxes are not included in the price. ...
In many industries, firms give consumers the opportunity to add (at a price) optional goods and services to a baseline product. The aim of our paper is to clarify the effect that offering add-ons has on baseline prices. In order to do that, we develop a theoretical model of add-on pricing in competitive environments with two distinctive features. First, we discuss the choice of offering the add-on, if this entails a fixed cost. Second, we allow firms to have a varying degree of market power over the add-on. In symmetric equilibria, the presence of add-on always reduces baseline prices. In asymmetric equilibria in which only one firm offers the add-on, its presence increases the baseline price if the firm’s market power over the add-on is limited. The latter prediction of the model is confirmed by a hedonic price regression using a dataset of cruises offered worldwide, a situation in which it is possible to control for the level of add-on market power.
... Finally, our findings suggest a novel explanation for price stickiness ( Rotemberg, 1982;Hannan and Berger, 1991 ), resale price maintenance ( Marvel and McCafferty, 1984;Deneckere et al., 1997 ), and price obfuscation ( Spiegler, 2006;Ellison and Ellison, 2009 ). To the best of our knowledge, our findings provide the first empirical evidence that personalized pricing can endanger sales because lower prices for other customers constitute reference points and might deter high value customers. ...
This experimental study investigates pricing and reactions to price discrimination and provides several novel insights. First, we identify the extent to which sellers intrinsically and strategically avoid price discrimination. Second, we find that sellers strategically overprice low value customers to avoid antagonizing high value customers. Third, we observe that customers are not generally antagonized by price discrimination: while they are less likely to buy if they are charged a higher price than another customer, they are more likely to buy if they are charged a lower price. Finally, we show that our findings hold regardless of whether sellers are monopolists or compete against other sellers. The observed behavioral patterns suggest a novel explanation for sticky prices and impulse purchase behavior.
... Owing to the abundance of obfuscation strategies (e.g. low prices and high shipping cost, low prices for not available products, and so on, see Ellison and Ellison (2009)) the true nature of the price structure is often difficult to decipher. (ii) Fishman (1992) argues that menu cost might result in staggered prices, and therefore, price dispersion; however, the counter-argument is that, especially in online markets, menu costs are particularly low. ...
E-commerce has become an integral part of the world’s economy. In this study we investigate the impact of service quality in e-tailing on site visits and consumer demand. Such an analysis is important given the almost Bertrand-like competitive structure. Our analysis is based on a large representative data set obtained from a price comparison site covering essentially the complete Austrian e-tailing market. Customer evaluations for a broad range of 15 different service characteristics are condensed using factor analysis. Negative binomial regression analysis is used to measure the impact of service quality dimensions on referral requests to online shops for different product categories. Our results show that the most important service quality aspects are those related to the ordering process and the firm’s website performance.
... In particular, people often follow rules of thumb and tend to simplify the information they encounter. For example, in my online shopping setting, people may ignore the high-range prices rather than use them as part of the distribution modeling [52] as they are unlikely to buy at those prices in any case. Alternatively, they may be affected by other psychological properties [138]. ...
This thesis explores the use of autonomous agents serving as mediators between different entities in modern markets to maximize an expected revenue (e.g., the agents' own profit or users' social welfare). This mediation can take many forms and serve many purposes, such as buyers and sellers at online shopping environments, men and women at dating sites, and different traders at barter markets. These agents differ from one another in terms such as the cost of their mediation services (e.g., they can offer their services for a fee or complimentary). In the first case, when the services are costly, agents must ponder the terms they set for their services. Similarly, when offering their services for free, they have to be as appealing as possible in order to overcome external competition.
This thesis provides theoretically-justified and empirically-validated approaches for designing and operating intelligent mechanisms for mediation agents in both electronic and barter markets. While two of the mechanisms presented within this thesis guide the platform for how to use selective information disclosure for its benefit, a different one is designed specifically in order to avoid selective information disclosure to the platform.
The research is based on both theoretical analysis and online validation of suggested heuristics. Theoretical analysis is carried out using concepts from search theory, and game theory and the online validation is based on Amazon Mechanical Turk, a well-known crowdsourcing platform imitating people's behavior in real-life.
The models used in this thesis consider settings of autonomous, fully-rational, and self-interested agents interacting with both fully-rational agents and bounded-rational people, and how the difference in their decision-making processes may imply differently, yet correlated, strategies for the system designer.
The different model variants are applicable and can be mapped onto various different real-life applications (e.g., online shopping, car purchasing, and barter markets). The models differ primarily in the assumptions they make. In electronic markets, assumptions relate to the agents' source of income and the users' computational capabilities (fully-rational agents vs. bounded-rational people). For barter markets, this thesis focuses on fully-rational agents that differ in the number of goods they hold and can be traded on the market. Based on the common model for these markets, this thesis provides a proof of impossibility result on the ability to enforce the agents' strategy-proof behavior regardless of the means used. Still, the thesis shows that by adding a set of real-life assumptions on the model, one can circumvent this impossibility result and validate that the truthful strategy is indeed the dominant one. The analysis is accompanied by extensive simulations and online experiments, making use of various testbeds. The simulations and online experiments are used to validate the applicability of the suggested mechanisms for modern markets and to the different entities populating them.
... Furthermore, they found that internet retailers made smaller and more frequent price changes than their conventional counterparts, reflecting their lower menu costs. Indeed, Ellison and Ellison (2009) found that computer parts retailers often actively monitor shopbot websites, frequently changing their price in response to competitors' actions. These price changes were often small and simply designed to maintain their position in the shopbot rankings. ...
Following the inherent perceived risk, electronics environment and the impact of e-marketing quality on consumer behavior being associated to e-marketing, it is uncertain whether these factors affect the performance of online retail outlets in a developing country like Nigeria. This study specifically examined the effect of E-marketing on retail outlet performance. Survey research design was adopted in this study on the target population of customers in Port Harcourt metropolis who patronizes online retail outlets with a sample size of Ninety (90) respondents. The purposive (judgmental) sample technique was used while questionnaire was the research instrument. The data generated was analyzed with simple percentages, and the hypotheses tested with spearman rank correlation coefficient using Statistical Program for Social Science version 18. It was found amongst others, that risk on finance, product delivery, information and security does not affect online retail outlets and that electronic environment have an impact on the marketing process of online retail outlets. It was also found that e-marketing quality has impact on consumer behavior as it concerns their perception on product value, e-service quality, prices and customer service. On the whole e-marketing has positive impact on retail outlet performance. It was then concluded that E-marketing has revolutionized the manner in which certain businesses market their products. It is therefore recommended that online retail outlets should ensure that their websites are properly hosted and their serves performance improved by employing strategies that will attract more trust and drastically reduce perceived risk.
... Researchers have documented the potential broker and consumer information and incentive asymmetry arising in consumer nance (Livingston and O'Neal (1996), Mahoney (2004), Bolton, Freixas, and Shapiro (2007), Bergstresser, Chalmers, and Tufano (2009), Woodward and Hall (2012), Christoersen, Evans, and Musto (2013)). I nd evidence consistent with Bergstresser, Chalmers, andTufano (2009), Hackethal, Inderst, andMyer (2012), Anagol, Cole, andSakar (2017), Christoffersen, Evans, andMusto (2013), and Chalmers and Reuter (2015), suggesting that brokers direct 12 In Carlin (2009), Carlin and Manso (2011), Cï¾÷lï¾÷rier and Vallï¾÷e (2017), and Ellison and Ellison (2009), rms use obfuscation to disorient investors/consumers, which is interesting when contrasted with the previous example of dominated products. In the previous example, JPMorgan could easily make the dierences across products less salient by changing either the convertible price or the underlying equity; however, they often choose not to. ...
I study how brokers distort household investment decisions. Using a novel convertible bond data set, I find that consumers often purchase dominated bonds—cheap and expensive otherwise identical bonds coexist in the market. Brokers are incentivized to sell the dominated bonds, typically earning two times greater fees for selling them. I develop and estimate a broker intermediated search model that rationalizes this behavior. The estimates indicate that costly search is a key friction in financial markets, but the effects of search costs are compounded when brokers are incentivized to direct the search of consumers towards high fee inferior products.
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This paper investigates how bidders in an auction become antagonized over their successful bid. Using data from a large‐scale sales campaign on eBay shows that auction buyers use the platform's feedback system to punish the seller when they discover that the same item is later offered for a lower fixed price. Specifically, it finds that (i) the probability of receiving unfavorable feedback is four times larger for auction sales than when the same item is sold by the same seller for the fixed price and (ii) that this probability is increasing in the auction price, even though reviewing bidders shape this price themselves. Exploiting a temporal variation in how salient the fixed‐price offer was and using text analysis tools on buyer comments shows that these effects on feedback are best explained by ex post reference‐price shifts. An additional survey experiment with exogenous variation in reference prices provides further evidence for this channel.
We investigate the interaction between home bias and market power by estimating an equilibrium oligopoly model using a dataset of new car registrations across Chinese provinces. We find a more elastic demand for home brands on average, despite a consistently stronger preference and cost advantages for local manufacturers. This limits the extent of home bias. Ignoring such effect would lead to an overestimation of home market share by 281% and overstate the cross region trade barriers. We also find that home bias is gender neutral and increases with age.
Résumé
Préférence nationale et pouvoir de marché: l’exemple de l’industrie automobile chinoise. Dans cet article, nous étudions l’interaction entre la «préférence nationale» et le pouvoir de marché en estimant un modèle d’équilibre oligopolistique s’appuyant sur un ensemble de données relatives aux nouvelles immatriculations automobiles dans les provinces chinoises. Nous constatons qu’en moyenne, la demande est plus élastique pour les marques locales en dépit d’une préférence toujours plus forte et d’avantages toujours plus accrus en matière de coûts pour les fabricants locaux. La portée de cette préférence nationale est donc limitée. Le fait d’ignorer ce paramètre d’élasticité reviendrait à surévaluer la part du marché intérieur de 281 % et à surestimer les barrières commerciales interrégionales. Nous constatons également que la préférence nationale concerne autant les femmes que les hommes et augmente avec l’âge.
The choice of an appropriate e‐commerce strategy for the listing in price comparison platforms (eBay, Amazon, and price search engines) is crucial for the survival of online stores in B2C e‐commerce business. We use a comprehensive dataset from the Austrian price search engine geizhals.at to identify successful e‐commerce strategies with regard to these listing decisions. An e‐commerce strategy is a set of choices including the listing decision, availability decision, and decisions on a price path and shipping cost. We apply cluster analysis to identify the different strategies that have been used by online retailers. Using various success measures such as revenue, clicks, market share, and the survival of firms, as dependent variables in our regression analyses, we present causal evidence on the effectiveness of different e‐commerce strategies.
Prices often react stronger to rising than to falling costs. This asymmetric cost pass-through is still not fully understood, but recent theories suggest that asymmetric adjustments of consumers’ search efforts to rising and to falling prices may be one explanation for this pattern. I use novel panel data to investigate the interaction of consumer search intensity, pricing and cost pass-through of residential electricity tariffs on online price comparison sites. I find that consumers search slightly more when prices rise but drastically decrease search efforts when they fall. Moreover, I find direct evidence that cost pass-through heavily depends on consumers’ search efforts in that cost increases are passed-through less to the consumer when search intensity is high while cost decreases are passed-through more when search intensity is high. This finding may help upstream firms to better understand how their price changes will translate into retail price adjustments.
We document a causal impact of online user‐generated information on real‐world economic outcomes. In particular, we conduct a randomized field experiment to test whether additional content on Wikipedia pages about cities affects tourists' choices of overnight visits. Our treatment of adding information to Wikipedia increases overnight stays in treated cities compared to nontreated cities. The impact is largely driven by improvements to shorter and relatively incomplete pages on Wikipedia. Our findings highlight the value of digital public goods for informing individual choices.
The large and growing industry of price comparison websites (PCWs) or “web aggregators” is poised to benefit consumers by increasing competitive pricing pressure on firms by acquainting shoppers with more prices. However, these sites also charge firms for sales, which feeds back to raise prices. I find that introducing any number of PCWs to a market increases prices for all consumers, both those who use the sites, and those who do not. I then use my framework to identify ways in which a more competitive environment could be achieved.
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Contrary to the traditional economic prediction that prices decrease as more firms enter the market, this paper finds a non-monotonic relationship between the number of firms and prices in online book markets. A substantial decrease in posted prices is observed when the market moves from a monopoly to duopoly. Surprisingly, as the market further expands, posted prices converge to monopoly price rather than competitive price. This is because as the number of sellers increase on the internet, the cost for consumers to obtain accurate information as well as the cost to evaluate products and sellers increase. Thus, the existence of a large number of sellers deter consumer search and lead to more random purchases. With little consumer search, sellers’ returns to undercutting price reduce. Therefore, instead of lowering price when faced with more competitors, sellers increase prices.
The rise of big data in the global economy has led to concerns about antitrust and consumer protection, but policy makers often treat the two areas separately. The separate treatment is justified in classical markets because antitrust tends to focus on firm-to-firm interactions, while consumer protection deals with firm-to-consumer interfaces. The two areas may also be subject to different laws, and any crossovers between the two have tended to be small. However, big data blurs the distinction between the two, causing them to intertwine, complement or even conflict with each other. This paper uses examples to illustrate why that is the case and identifies areas that would benefit from more economic research.
Purpose
Cross-border e-commerce in China has been booming in recent years. This paper aims to study pricing in Chinese cross-border e-commerce companies and focuses on the baby food market, which is simply examined as a case study to highlight broader implications. In this intensely competitive sector, the biggest challenge faced by such companies is ensuring that they are in a position to be able set prices in the short-term to maximize their competitive advantage and profitability. The study of pricing will help management to make correct operational decisions.
Design/methodology/approach
This study utilizes transaction data, which were obtained from the Taobao e-commerce platform. Taobao is the largest e-commerce retail platform in the world. We analyzed factors, including business models, homogeneity, reputation ratings and sales volumes, which may affect pricing.
Findings
This study found that consumers in the baby food sector of Chinese cross-border e-commerce are not price-sensitive. Consumers are reputation-rating-sensitive. The reputation ratings of sellers affect the price dispersion in e-commerce markets. The Core Price Dispersion Rate Model not only considers the prices but also takes sales volumes into account in the calculations. Finally, based on Gaussian processes, a model was developed for price forecasting in the area of cross-border e-commerce. The experimental results show that the proposed method is highly valuable for price forecasting.
Originality/value
This study provides a novel understanding of the baby food sector in the Chinese cross-border e-commerce market by examining the business model, price dispersion, reputation rating and correlation between the reputation of sellers, prices and sales volume. Furthermore, a model for price forecasting is proposed.
Digitale Technologien stellen bestehende Marktmechanismen, wirtschaftspolitische Instrumente, Strukturen sowie ökonomische und soziale Interaktionen grundlegend in Frage. Während auf traditionellen Märkten den Preisen von Gütern und Dienstleistungen die zentrale Allokationsfunktion zukommt, wird der Konnex zwischen Preis und Wert in der datengetriebenen Ökonomie weitgehend aufgelöst. Die Ursache dafür liegt in der spezifischen Kostenstruktur, die durch hohe Fixkosten bei gleichzeitig äußert niedrigen Grenzkosten (nahe Null) gekennzeichnet ist. Diese Kostenstruktur begünstigt die monetär (fast) kostenlose Skalierung digitaler Produkte und Dienstleistungen auf Plattformmärkten". In der digitalen Ökonomie bildet die Verfügungsmacht über Daten den entscheidenden Wettbewerbsfaktor. Im Extremfall entstehen daraus (natürliche) Monopole. Auf der Grundlage von sechs Themenfeldanalysen (Makroökonomie, Öffentlicher Sektor, Wettbewerb, Raum, Soziale Sicherheit, Umwelt und Energie) werden die Erkenntnisse zu drei Metahypothesen verdichtet, die den Handlungsspielraum zur optimalen Nutzung der Vorteile der Digitalisierung für Wirtschaftswachstum, Beschäftigung und Wohlstand abstecken: 1. Die "neue" Ökonomie ist eine Ökonomie digitaler Daten ("Digitalismus"). 2. Vorhandene Strukturen brechen auf ("Strukturbruch").
3. Neue Strukturen manifestieren sich in Extremen ("Polarisierung").
Limited information is the key element generating price dispersion in models of homogeneous‐goods markets. We show that the global relationship between information and price dispersion is an inverse‐U shape. We test this mechanism for the retail gasoline market using a new measure of information based on commuter data from Austria. Commuters sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. Our empirical estimates are in line with the theoretical predictions. We also quantify how information affects average prices paid and the distribution of surplus in the gasoline market. This article is protected by copyright. All rights reserved
Consumer-product manufacturers—and retailers that sell their products—often sell slightly differentiated items for reasons other than appealing to heterogeneous tastes—different sizes of a popular brand, or different flavors in a common product line for instance. We argue that this practice is a form of strategic obfuscation, which is intended to make price-comparison more difficult, and thereby raise margins on non-comparable products. We test our hypothesis with the use of examples from consumer-packaged good categories in German and French retail scanner data. We find that—after controlling for other explanations for how margins can vary with package size and type—we cannot rule out strategic obfuscation as a feature of our retail sales data.
Offering digital content for renting has become popular among online retailers. Following the trend, textbook retailers have introduced e-textbook rental programs which satisfy students’ needs to reduce the cost of textbooks. Under the e-textbook rental model, retailers have homogeneous digital products and delivery channel. Therefore, they need specific differentiation strategies to distinguish themselves in the competition. In this study we aim to investigate the key factors of retailers’ differentiation strategy and their impact on retailers’ price advantage in the market. Our horizontal model shows that factors such as service quality are essential for the leading retailer to maintain price advantage in the competityon. We also carry out an empirical study on service design and consumers’ input by analyzing a unique data set of 151 e-textbooks from two major textbook rental retailers Amazon and Chegg. Our results show that factors including service flexibility, earliest return time, consumers’ rating, and e-textbook selling price play a significant role in retailers’ pricing differentiation strategy. Overall, our research provides useful managerial insights and operational policies for online textbook rental retailers.
In today’s internet markets consumers can search for, find and compare prices worldwide. Online, information circulates faster than offline and arbitrage opportunities such as the ones arising from currency shocks are easily unveiled. In this paper, we estimate for the first‐time exchange rate elasticities for cross‐border e‐commerce transactions. Exploiting a new high‐frequency database on international transactions of parcels, we find that a 1% appreciation of the domestic currency increases e‐commerce imports by 0.7%. Comparing the result with traditional estimates in offline markets, this implies a 50% exchange rate pass‐through online.
Many individual investors, mutual funds, and institutions trade as if dividends and capital gains are disconnected attributes, not fully appreciating that dividends result in price decreases. Behavioral trading patterns (e.g., the disposition effect) are driven by price changes instead of total returns. Investors rarely reinvest dividends, and trade as if dividends are a separate, stable income stream. Analysts fail to account for the effect of dividends on price, leading to optimistic price forecasts for dividend‐paying stocks. Demand for dividends is systematically higher in periods of low interest rates and poor market performance, leading to lower returns for dividend‐paying stocks.
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Using data collected between August, 1999, and January, 2000, covering 399 books, we examine pricing by thirty-two online United States-based bookstores. At the aggregate level, we find that both advertising and competitive structure had the predicted effects. More competition led to lower prices and to lower price dispersion. Holding competitive structure constant, more widely advertised items also had lower prices. At the firm level, we observe considerable heterogeneity in behavior. Firms had differentiated (or attempted to differentiate) on dimensions such as brand, price, and selection. Copyright 2001 by Blackwell Publishing Ltd
It is shown that wquilibria with dispersed prices exist in environments with identical and rational agents on both sides of the market. In particular, the original Stigler model of nonsequential search often has many equilibria, some with price dispersion. Also, price dispersion holds in equilibrium in general if search is "noisy," i.e., there is some chance of learning two or more prices when an agent is looking for one price.
Guided by past research, conventional wisdom in the retailing area, and microeconomic theory, the authors develop a series of hypotheses about the effects of loss leaders, in-store price specials, and double coupon promotions on overall store sales, profit, and traffic. The resulting system of structural relationships is tested and cross-validated with data from two large supermarkets. The findings indicate that (1) though most of the loss leader promotions had no effect on store profit, those loss leaders that did affect profit did so through their effect on store traffic rather than through their effect on sales of the promoted items, (2) double coupon promotions affected profit by increasing sales of products purchased with a coupon rather than by increasing store traffic, and (3) in-store price specials appear to have had no effect on store profit, sales, or traffic. The results of the study also emphasize the importance of building store traffic to increase retailer profit and of examining the effects of price promotions within the context of a system of relevant equations.
Guided by past research, conventional wisdom in the retailing area, and microeconomic theory, the authors develop a series of hypotheses about the effects of loss leaders, in-store price specials, and double coupon promotions on overall store sales, profit, and traffic. The resulting system of structural relationships is tested and cross-validated with data from two large supermarkets. The findings indicate that (1) though most of the loss leader promotions had no effect on store profit, those loss leaders that did affect profit did so through their effect on store traffic rather than through their effect on sales of the promoted items, (2) double coupon promotions affected profit by increasing sales of products purchased with a coupon rather than by increasing store traffic, and (3) in-store price specials appear to have had no effect on store profit, sales, or traffic. The results of the study also emphasize the importance of building store traffic to increase retailer profit and of examining the effects of price promotions within the context of a system of relevant equations.
This paper addresses the issue of retail price image by offering an explanation for how and when stores can use their advertised prices to signal the prices of other products in the store. A model of a two-product retail market is presented in which stores advertise the price of one product and customers do not know the price of the other product before selecting which store to visit. In a model with full customer information, stores with different marginal costs charge different prices for each product. When customers do not know each store's marginal cost type, an opportunity arises for each store to signal its cost type using its advertised prices. In such a model, additional equilibria exist. In particular, stores with different costs may charge the same advertised price while continuing to charge different prices for the unadvertised product. Data from competing drycleaning stores is generally consistent with the model predictions. A number of additional properties of the equilibria are discussed and possible extensions to the model are proposed.
A finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement. Consumers' search rules are optimal with respect to the stores' pricing strategies, and consumers must visit a store to obtain information about its actual price. A symmetric Nash equilibrium (SNE) always exists. The model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal-cost pricing. The competitiveness of a market depends crucially on the shape of the search cost distribution, moreso than on the number of competing firms.
When identical firms pay a fee to list prices at a price comparison site and can price discriminate between consumers who do and don’t use the site, prices listed at the site are dispersed but lower than at firms’ own websites
Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quantity. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a consumer price index for online books. The results show significant price sensitivity at both merchants but demand at Barnes and Noble is much more price-elastic than is demand at Amazon. The data also allow us to estimate the magnitude of retail outlet substitution bias in the CPI due to the rise of Internet sales. The estimates suggest that prices online are much more variable than the CPI, which understates inflation by more than double in one period and gets the sign wrong in another.
This paper develops a model of oligopolistic price competition to analyze the impact of online intermediaries such as Autobytel.com on the price setting process in the automobile market. The roles of dealer search costs, the fraction of buyers using the intermediary, the value of the item being sold, and heterogeneity in buyer bargaining abilities are explored. The model provides theoretical insights relevant to the empirical literature addressing the role that intermediaries like Autobytel play in online markets. For example, we present conditions under which the price offered through the intermediary is either higher or lower than offline (bargained) prices.
We investigate the effect of Internet car referral services on dealer pricing of automobiles in California. Customers of an online service pay on average 2% less for their car ($450 for the average car). 25% of the savings come from purchasing at low-price dealerships affiliated with the online service. The remaining 75% stem from information provision by the online service, bargaining by the service on behalf of consumers, and cost efficiencies. A consumer receiving the mean online price does better than 65% of offline consumers, conditional on the car being purchased. Copyright 2001 by Blackwell Publishing Ltd
We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to consumers who access the list of advertised prices. Gatekeeper profits are maximized in an equilibrium where (a) the product market exhibits price dispersion; (b) access fees are sufficiently low that all consumers subscribe; (c) advertising fees exceed socially optimal levels, thus inducing partial firm participation; and (d) advertised prices are below unadvertised prices. Introducing the market for information has ambiguous social welfare effects.
N identical stores compete by choosing prices for a homogeneous good with constant marginal costs. Consumers search sequentially with perfect recall for the lowest price. One class of consumers, called shoppers, have zero search costs, while all other consumers have a positive search cost, c. There is a unique symmetric Nash equilibrium price distribution with the property that it changes smoothly from "marginal cost pricing" when all consumers are shoppers and/or c = 0 and "monopoly pricing" when no consumers are shoppers. Remarkably, as the number of stores increases, the Nash equilibrium becomes more monopolistic. Copyright 1989 by American Economic Association.
Despite the mixed empirical evidence, many economists still hold to the view that Internet will promote competition between firms, thereby lowering prices and increasing economic welfare. This paper presents a search model that provides a different view. We analyze the market for a homogeneous good where some consumers are fully informed while others are not. Depending on the parameter values, there may be three types of equilibria and the comparative statics results are different for each of these equilibria. For example, a reduction in search cost may raise equilibrium prices when consumers' search intensity is low, but reduce prices when consumers search intensity is high. These different comparative statics results may explain the mixed empirical evidence found so far.
Internet shopbots compare prices and services levels at competing retailers, creating a laboratory for analysing consumer choice. We analyse 20,268 shopbot consumers who select various books from 33 retailers over 69 days. Although each retailer offers a homogeneous product, we find that brand is an important determinant of consumer choice. The three most heavily branded retailers hold a $1.72 price advantage over more generic retailers in head-to-head price comparisons. In particular, we find that consumers use brand as a proxy for retailer credibility in non-contractible aspects of the product and service bundle, such as shipping reliability. Copyright 2001 by Blackwell Publishing Ltd
Manufacturers may intentionally damage a portion of their goods in order to price discriminate. Many instances of this phenomenon are observed. It may result in a Pareto improvement. Copyright 1996 The Massachusetts Institute of Technology.
The Internet has the potential to significantly reduce search costs by allowing consumers to engage in low-cost price comparisons online. This paper provides empirical evidence on the impact that the rise of Internet comparison shopping sites has had for the prices of life insurance in the 1990s. Using micro data on individual life insurance policies, the results indicate that, controlling for individual and policy characteristics, a 10 percent increase in the share of individuals in a group using the Internet reduces average insurance prices for the group by as much as 5 percent. Further evidence indicates that prices did not fall with rising Internet usage for insurance types that were not covered by the comparison websites, nor did they in the period before the insurance sites came online. The results suggest that growth of the Internet has reduced term life prices by 8 to 15 percent and increased consumer surplus by $115-215 million per year and perhaps more. The results also show that the initial introduction of the Internet search sites is initially associated with an increase in price dispersion within demographic groups, but as the share of people using the technology rises further, dispersion falls. We would like to thank Eric Anderson, Judy Chevalier, Mark Duggan, James Garven, Robert Hartwig, Thomas Hubbard, Ken Isenberg, Kent Jamison, John Johnson, Peter Klenow, Olivia Mitchell, Jim Poterba, Todd Sinai, Alan Sorensen, Mark Warshawsky, Alwyn Young and seminar participants at Wharton, University of South Carolina, and the 2000 ARIA meetings for helpful comments, and Jeffrey Butler, Andrew Lee, and Soojin Yim for excellent research assistance. We would also like to thank Ken Isenberg and LIMRA International for assistance with data from the LIMRA Buyer Studi...
Pricing, Consumer Search and the Size of Internet Markets Tinbergen Institute Discussion Paper
- Maarten Janssen
- Jose Luis Moraga
Janssen, Maarten, and Jose Luis Moraga (2000): " Pricing, Consumer Search and the Size
of Internet Markets, " Tinbergen Institute Discussion Paper 2000-0042.