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Clicks, Discontinuities, and Firm Demand Online

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  • Baye, Michael R
  • Gatti, J. Rupert J
  • Kattuman, Paul
  • Morgan, John

Abstract

The market values of online platforms, such as Yahoo, stem from their ability to monetize the clicks they generate for firms advertising on their sites. We exploit a unique dataset on clicks from one of Yahoo's price comparison sites to estimate the determinants of clicks received by online retailers. We find that a firm enjoys a 60% jump in its clicks when it offers the lowest price at the site. This discontinuity is consistent with a variety of models that have been used to rationalize the price dispersion observed in online markets. We also show that one may use estimates of the determinants of a firm's clicks to obtain bounds on its underlying demand parameters, including own- and cross-price elasticities. Our results have potentially significant ramifications for online retailers, platforms, and policymakers: Failure to account for discontinuities distorts parameter estimates by 50 to 100 percent.

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Bibliographic Info

Paper provided by Competition Policy Center, Institute for Business and Economic Research, UC Berkeley in its series Competition Policy Center, Working Paper Series with number qt3qg7270w.

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Date of creation: 01 Nov 2006
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Handle: RePEc:cdl:compol:qt3qg7270w

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References

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  1. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-38, July.
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Cited by:
  1. Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf & Zulehner, Christine, 2012. "Market structure and market performance in e-commerce," ZEW Discussion Papers 11-084 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Armstrong, Mark & Zhou, Jidong, 2011. "Paying for prominence," MPRA Paper 30529, University Library of Munich, Germany.
  3. Hu, Yu Jeffrey & Tang, Zhulei, 2014. "The impact of sales tax on internet and catalog sales: Evidence from a natural experiment," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 84-90.
  4. Yonghong An & Michael R Baye & Yingyao Hu & John Morgan & Matt Shum, 2010. "Identification and Estimation of Online Price Competition with an Unknown Number of Firms," Working Papers 2010-17, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Nov 2012.
  5. Yonghong An & Michael R. Baye & Yingyao Hu & John Morgan & Matt Shum, 2010. "Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects," Economics Working Paper Archive 564, The Johns Hopkins University,Department of Economics.
  6. Takayuki Mizuno & Makoto Nirei & Tsutomu Watanabe, 2010. "Closely Competing Firms and Price Adjustment: Some Findings from an Online Marketplace," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 673-696, December.
  7. Novarese, Marco & Wilson, Chris M., 2013. "Being in the Right Place: A Natural Field Experiment on List Position and Consumer Choice," MPRA Paper 48074, University Library of Munich, Germany.

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