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Clicks, Discontinuities, and Firm Demand Online

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  • Michael R. Baye

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • J. Rupert J. Gatti

    (University of Cambridge)

  • Paul Kattuman

    (University of Cambridge)

  • John Morgan

    (University of California at Berkeley)

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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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2006-21-baye-gatti-kattuman-morgan.pdf
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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2006-21.

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Date of creation: 2006
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Handle: RePEc:iuk:wpaper:2005-21

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Citations

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Cited by:
  1. Michelle Haynes & Steve Thompson, 2013. "Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site," Review of Industrial Organization, Springer, vol. 42(1), pages 1-23, February.
  2. 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.
  3. Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf & Zulehner, Christine, 2014. "Market structure and market performance in E-commerce," European Economic Review, Elsevier, vol. 68(C), pages 199-218.
  4. Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf & Zulehner, Christine, 2012. "Market Structure and Market Performance in E-Commerce," Economics Series 287, Institute for Advanced Studies.
  5. 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.
  6. 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.
  7. Armstrong, Mark & Zhou, Jidong, 2011. "Paying for prominence," MPRA Paper 30529, University Library of Munich, Germany.
  8. 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.
  9. 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.

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