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Internet Retail Demand: Taxes, Geography, and Online-Offline Competition

Glenn Ellison
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

April 28, 2006

MIT Department of Economics Working Paper No. 06-14

Abstract:
Data on sales of memory modules are used to explore several aspects of e-retail demand. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from offline retailers. This suggests that there is substantial substitution between online and offline retail and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: we find some evidence that consumers prefer purchasing from firms in nearby states to benefit from faster shipping times as well as evidence of a separate preference for buying from in-state firms. Consumers appear fairly rational in some ways, but boundedly rational in others.

Keywords: Ecommerce, internet taxation, discrete choice analysis

JEL Classifications: D12, H20, L81, R12

Working Paper Series

Date posted: May 12, 2006 ; Last revised: May 15, 2006

Suggested Citation

Ellison, Glenn David and Ellison, Sara Fisher, Internet Retail Demand: Taxes, Geography, and Online-Offline Competition (April 28, 2006). MIT Department of Economics Working Paper No. 06-14. Available at SSRN: http://ssrn.com/abstract=901852

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Contact Information

Sara Fisher Ellison (Contact Author) Massachusetts Institute of Technology (MIT) - Department of Economics ( email ) 50 Memorial Drive Room E52-262C Cambridge, MA 02142 United States 617-253-3821 (Phone) 617-253-1330 (Fax)
Glenn David Ellison Massachusetts Institute of Technology (MIT) - Department of Economics ( email ) 50 Memorial Drive Room E52-380B Cambridge, MA 02142 United States 617-253-8702 (Phone)
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States