A Nearly Perfect Market?

41 Pages Posted: 20 Oct 2003 Last revised: 9 Jun 2014

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

Date Written: 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

Suggested Citation

Brynjolfsson, Erik and Dick, Astrid Andrea and Smith, Michael D., A Nearly Perfect Market? (February 2009). Available at SSRN: https://ssrn.com/abstract=450220 or http://dx.doi.org/10.2139/ssrn.450220

Erik Brynjolfsson

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-313
Cambridge, MA 02142
United States
617-253-4319 (Phone)

HOME PAGE: http://digital.mit.edu/erik

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Astrid Andrea Dick

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Michael D. Smith (Contact Author)

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

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