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Measuring Prices and Price Competition Online: Amazon and Barnes and Noble

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  • Austan Goolsbee
  • Judith Chevalier

Abstract

Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quantity. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a consumer price index for online books. The results show significant price sensitivity at both merchants but demand at Barnes and Noble is much more price-elastic than is demand at Amazon. The data also allow us to estimate the magnitude of retail outlet substitution bias in the CPI due to the rise of Internet sales. The estimates suggest that prices online are much more variable than the CPI, which understates inflation by more than double in one period and gets the sign wrong in another.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9085.

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Date of creation: Jul 2002
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Publication status: published as Goolsbee, Austan and Judith Chevalier. “Measuring prices and price competition online: Amazon vs. Barnes and Noble." Quantitative Marketing and Economics I, 2 (June 2003).
Handle: RePEc:nbr:nberwo:9085

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  1. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  2. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Chapters, in: E-commerce, pages 521-539 National Bureau of Economic Research, Inc.
  3. Austan Goolsbee, 1999. "Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 1-64.
  4. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03.
  5. Dennis W. Carlton & Judith A. Chevalier, 2001. "Free Riding and Sales Strategies for the Internet," NBER Working Papers 8067, National Bureau of Economic Research, Inc.
  6. Judith A. Chevalier & David S. Scharfstein, 1994. "Capital Market Imperfections and Countercyclical Markups: Theory and Evidence," NBER Working Papers 4614, National Bureau of Economic Research, Inc.
  7. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters, in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
  8. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  9. Austan Goolsbee, 1998. "In a World Without Borders: The Impact of Taxes on Internet Commerce," NBER Working Papers 6863, National Bureau of Economic Research, Inc.
  10. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
  11. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
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