Working Paper: NBER ID: w10570
Authors: Glenn Ellison; Sara Fisher Ellison
Abstract: 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 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.
Keywords: Price Search Engines; Obfuscation; Demand Elasticity; Online Retail; Consumer Behavior
JEL Codes: L8; D4; M3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price search engines (P22) | reduced search frictions (D83) |
| reduced search frictions (D83) | increased price sensitivity (D49) |
| increased price sensitivity (D49) | demand elasticity (D12) |
| demand elasticity (D12) | changes in quantity demanded (D11) |
| obfuscation practices (Y50) | dampened price sensitivity (D49) |
| obfuscation practices (Y50) | raised profits (D33) |
| obfuscation practices (Y50) | adverse selection effect in demand (D91) |
| charging low prices for low-quality goods (D49) | increased sales of higher-quality products (L15) |
| obfuscation strategies (Y50) | raised markups (D43) |