Abstract

http://ssrn.com/abstract=584401
 
 

References (42)



 
 

Citations (40)



 


 



Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact


Anindya Ghose


New York University - Leonard N. Stern School of Business

Michael D. Smith


Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Rahul Telang


Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

September 2005


Abstract:     
Information systems and the Internet have facilitated the creation of used product markets that feature a dramatically wider selection, lower search costs, and lower prices than their brick-and-mortar counterparts do. The increased viability of these used product markets has caused concern among content creators and distributors, notably the Association of American Publishers and Author's Guild, who believe that used product markets will significantly cannibalize new product sales.

This proposition, while theoretically possible, is based on speculation as opposed to empirical evidence. In this paper, we empirically analyze the degree to which used products cannibalize new product sales for books - one of the most prominent used product categories sold online. To do this, we use a unique dataset collected from Amazon.com's new and used book market-places to measure the degree to which used products cannibalize new product sales. We then use these estimates to measure the resulting first-order changes in publisher welfare and consumer surplus.

Our analysis suggests that used books are poor substitutes for new books for most of Amazon's customers. The cross-price elasticity of new book demand with respect to used book prices is only 0.088. As a result only 16% of used book sales at Amazon cannibalize new book purchases. The remaining 84% of used book sales apparently would not have occurred at Amazon's new book prices. Further, our estimates suggest that this increase in book readership from Amazon's used book marketplace increases consumer surplus by approximately $67.21 million annually. This increase in consumer surplus, together with an estimated $45.05 million loss in publisher welfare and a $65.76 million increase in Amazon's profits, leads to an increase in total welfare to society of approximately $87.92 million annually from the introduction of used book markets at Amazon.com.

Number of Pages in PDF File: 41

Keywords: Publisher welfare, retailer welfare, consumer surplus, price competition, used books sales, electronic markets

working papers series


Download This Paper

Date posted: September 2, 2004  

Suggested Citation

Ghose, Anindya and Smith, Michael D. and Telang, Rahul, Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact (September 2005). Available at SSRN: http://ssrn.com/abstract=584401 or http://dx.doi.org/10.2139/ssrn.584401

Contact Information

Anindya Ghose (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4rth Street
New York, NY 10012
United States
Michael D. Smith
Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )
Pittsburgh, PA 15213-3890
United States
HOME PAGE: http://www.heinz.cmu.edu/~mds
Rahul Telang
Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )
4800 Forbes Ave
Pittsburgh, PA 15213-3890
United States
412-268-1155 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 24,465
Downloads: 2,263
Download Rank: 2,787
References:  42
Citations:  40

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.500 seconds