Search, Obfuscation, and Price Elasticities on the Internet

55 Pages Posted: 15 Jul 2004  

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004

Abstract

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 some 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.

Keywords: search, obfuscation, Internet, retail, search engines, loss leaders, add-on pricing, website design, demand elasticities, frictionless commerce

JEL Classification: L8, D4, M3

Suggested Citation

Ellison, Glenn and Ellison, Sara Fisher, Search, Obfuscation, and Price Elasticities on the Internet (June 2004). MIT Department of Economics Working Paper No. 04-27. Available at SSRN: https://ssrn.com/abstract=564742 or http://dx.doi.org/10.2139/ssrn.564742

Glenn David Ellison (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Room E52-380B
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Sara Fisher Ellison

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)

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