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A Nearly Perfect Market?
Erik Brynjolfsson Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER) Astrid Andrea Dick INSEAD; Federal Reserve Bank of New York Michael D. Smith Carnegie Mellon University - H. John Heinz III School of Public Policy and Management February 2009 Abstract: We estimate the magnitude of consumer search benefits and costs using data obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $6.55 while the cost of an exhaustive search of the offers is a maximum of $6.45. We are also able to estimate price elasticities and find that they are relatively high compared to offline markets (-7 to -10 in our base model). Our results suggest that consumers face fairly high costs to search for information online, even in the "nearly perfect" market of the shopbot.
Keywords: Search costs, shopbot, product differentiation, random coefficients choice model Working Paper SeriesDate posted: October 20, 2003 ; Last revised: April 29, 2009Suggested CitationContact Information
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