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Identifying Consumer-Welfare Changes when Online Search Platforms Change Their List of Search Results

Ryan Martin

Staff Working Papers from Bank of Canada

Abstract: Online shopping is often guided by search platforms. Consumers type keywords into query boxes, and search platforms deliver a list of products. Consumers' attention is limited, and exhaustive searches are often impractical. Thus, the order in which products appear in search results affects the products consumers discover and ultimately purchase. In this setting, I study the identification of consumer-welfare changes in response to exogenous changes in search-result lists. I focus on the case of consumers engaging in costly searches for a single, indivisible (discrete) product among a collection of substitutes. I show that exact consumerwelfare changes—that is, compensating variation and equivalent variation—can be calculated with the use of straightforward integrals of the aggregate demand. I apply my results to shopping data provided by an online travel agency (OTA). I estimate that when the OTA changes search results from random to its proprietary listing structure, welfare improves by an average of $8.84 per user. I estimate an average welfare loss of $20.51 per user when the OTA removes the top five products from all of its search-result lists.

Keywords: Econometric and statistical methods; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: C14 D83 L40 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-03
New Economics Papers: this item is included in nep-com and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:20-5

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