Working Paper: CEPR ID: DP14864
Authors: Frank Verboven; Lukasz Grzybowski; Andr Romahn; Nestor Duchbrown
Abstract: We develop a framework to evaluate the impact of market integration, accounting for spillovers between multiple distribution channels. Our adaptation of the standard random coefficients logit demand model allows for substitution between distribution channels and incorporates consumer arbitrage across countries. We apply our framework to the European portable PC market, where geo-blocking practices that restrict online trade have recently been banned. The total consumer and welfare gains from reducing cross-border arbitrage costs are relatively modest, and entirely due to increased product choice rather than reduced price discrimination. At the same time, the distributional effects from the cross-country price convergence are substantial. Consumers in high income countries gain most, while consumers in medium and low income countries are only marginally better or even worse off.
Keywords: market integration; online trade restrictions; geoblocking; PC industry
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ban on geoblocking practices (L88) | price convergence effect (F62) |
| price convergence effect (F62) | online prices drop in high-income countries (F61) |
| price convergence effect (F62) | online prices rise in medium and low-income countries (P22) |
| market integration (F02) | spillover effects to traditional channels (F69) |
| cross-border arbitrage costs reduction (F16) | total consumer and welfare gains (D69) |
| cross-country price convergence (P22) | distributional effects (D39) |
| distributional effects (D39) | high-income consumers benefit (F61) |
| distributional effects (D39) | medium and low-income consumers experience marginal or negative outcomes (F61) |