Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers

Erik Brynjolfsson, Yu (Jeffrey) Hu () and Michael Smith
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Yu (Jeffrey) Hu: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Management Science, 2003, vol. 49, issue 11, 1580-1596

Abstract: We present a framework and empirical estimates that quantify the economic impact of increased product variety made available through electronic markets. While efficiency gains from increased competition significantly enhance consumer surplus, for instance, by leading to lower average selling prices, our present research shows that increased product variety made available through electronic markets can be a significantly larger source of consumer surplus gains. One reason for increased product variety on the Internet is the ability of online retailers to catalog, recommend, and provide a large number of products for sale. For example, the number of book titles available at Amazon.com is more than 23 times larger than the number of books on the shelves of a typical Barnes & Noble superstore, and 57 times greater than the number of books stocked in a typical large independent bookstore. Our analysis indicates that the increased product variety of online bookstores enhanced consumer welfare by $731 million to $1.03 billion in the year 2000, which is between 7 and 10 times as large as the consumer welfare gain from increased competition and lower prices in this market. There may also be large welfare gains in other SKU-intensive consumer goods such as music, movies, consumer electronics, and computer software and hardware.

Keywords: Consumer Surplus; Product Variety; Electronic Commerce; Welfare; Internet (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (307)

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http://dx.doi.org/10.1287/mnsc.49.11.1580.20580 (application/pdf)

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Working Paper: Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:49:y:2003:i:11:p:1580-1596

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