Consumer Price Search and Platform Design in Internet Commerce
Jonathan Levin and
No 20415, NBER Working Papers from National Bureau of Economic Research, Inc
Search frictions can explain why the "law of one price" fails in retail markets and why even firms selling commodity products have pricing power. In online commerce, physical search costs are low, yet price dispersion is common. We use browsing data from eBay to estimate a model of consumer search and price competition when retailers offer homogeneous goods. We find that retail margins are on the order of 10%, and use the model to analyze the design of search rankings. Our model explains most of the effects of a major re-design of eBay's product search, and allows us to identify conditions where narrowing consumer choice sets can be pro-competitive. Finally, we examine a subsequent A/B experiment run by eBay that illustrates the greater difficulties in designing search algorithms for differentiated products, where price is only one of the relevant product attributes.
JEL-codes: D12 D22 D47 D83 L13 L86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind and nep-mkt
Note: IO PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16) Track citations by RSS feed
Published as Dinerstein, Michael, Liran Einav, Jonathan Levin, and Neel Sundaresan. 2018. "Consumer Price Search and Platform Design in Internet Commerce." American Economic Review, 108 (7): 1820-59.
Downloads: (external link)
Journal Article: Consumer Price Search and Platform Design in Internet Commerce (2018)
Working Paper: Consumer Price Search and Platform Design in Internet Commerce (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20415
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().