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The Aggregate Impact Of Online Retail

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  • Allen Tran

Abstract

To study the impact of online retail on aggregate welfare, I use a spatial model to calculate a new measure of store level retail productivity and each store's equilibrium response to increased competitive pressure from online retailers. The model is estimated on confidential store-level data spanning the universe of US retail stores, detailed local-level demographic data and shortest-route data between locations. From counterfactual exercises mimicking improvements in shipping and increased internet access, I estimate that improvements in online retail increased aggregate welfare from retail activities by 13.4 per cent. Roughly two-thirds of the increase can be attributed to welfare improvements holding fixed market shares, with the remainder due to reallocation. Surprisingly, 8.2 percent of firms actually benefit as they absorb market share from closed stores. Finally, I estimate that the proposed Marketplace Fairness Act would claw back roughly one-third of sales that would otherwise have gone to online retailers between 2007-12.

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File URL: ftp://ftp2.census.gov/ces/wp/2014/CES-WP-14-23.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 14-23.

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Length: 45 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:cen:wpaper:14-23

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  1. Allan Collard-Wexler & Jan De Loecker, 2013. "Reallocation and Technology: Evidence from the U.S. Steel Industry," NBER Working Papers 18739, National Bureau of Economic Research, Inc.
  2. Morales, Eduardo & Sheu, Gloria & Zahler, Andrés, 2011. "Gravity and extended gravity: estimating a structural model of export entry," MPRA Paper 30311, University Library of Munich, Germany.
  3. Nan Yang & Jeffrey Campbell & Jaap Abbring, 2012. "Simple Markov-Perfect Industry Dynamics," 2012 Meeting Papers 506, Society for Economic Dynamics.
  4. Glenn Ellison & Sara Fisher Ellison, 2009. "Tax Sensitivity and Home State Preferences in Internet Purchasing," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 53-71, August.
  5. Jeffrey Campbell, 2000. "Market Size Matters," Econometric Society World Congress 2000 Contributed Papers 1225, Econometric Society.
  6. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  7. Guido Menzio & Greg Kaplan, 2013. "Five Facts About Price Dispersion," 2013 Meeting Papers 995, Society for Economic Dynamics.
  8. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  9. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 285-322, 06.
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