Working Paper: NBER ID: w24197
Authors: Glenn Ellison; Sara Fisher Ellison
Abstract: This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books. A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare. A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace. The paper develops a framework for structural estimation of a model based on the theory. The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.
Keywords: match quality; used books; internet sales; price dispersion; consumer surplus
JEL Codes: D22; L13; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| improved search technologies (O33) | increased price dispersion (D49) |
| improved search technologies (O33) | increased social welfare (I39) |
| improved search technologies (O33) | increased prices (P22) |
| increased prices (P22) | increased social welfare (I39) |
| shift to internet sales (L81) | increased seller profits (D40) |
| shift to internet sales (L81) | increased consumer surplus (D11) |
| improved search technologies (O33) | lower prices at the lower end of the price distribution (D39) |