Search, Obfuscation, and Price Elasticities on the Internet
Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)
Sara Fisher Ellison
Massachusetts Institute of Technology (MIT) - Department of Economics
NBER Working Paper No. w10570
We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation---practices that frustrate consumer search or make it less damaging to firms---resulting in much less price sensitivity on other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.
Number of Pages in PDF File: 54working papers series
Date posted: July 4, 2004
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