The Role of Quality in Internet Service Markets

Elena Krasnokutskaya (), Kyungchul Song and Xun Tang

Journal of Political Economy, 2020, vol. 128, issue 1, 75 - 117

Abstract: In online procurement markets, projects are often allocated through a mechanism that allows buyers to take into account a seller’s nonprice characteristics as well as his bid. We design a methodology to recover primitives of the environment in the presence of unobserved seller heterogeneity while accommodating two important features of such markets: buyer-specific choice sets and the high turnover of sellers. We apply our method to data from an online market for programming services, to assess buyers’ welfare gains associated with the globalization enabled by the internet. We find that the internet enables buyers to substantially improve on their outside (local) option; many of the gains arise from access to the international markets.

Date: 2020
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