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Fixed Costs, Product Variety, an Welfare on the Internet

Author

Listed:
  • Guillermo Israilevich

    (independent Consultan.)

Abstract

The impact of product variety on welfare has received little attention in the electronic commerce literature. The problem with product variety is that more variety does not necessarily imply higher welfare. This paper finds the conditions under which more variety, if caused by lower fixed costs, implies an unambiguous welfare gain. A calibration to the market of books confirms the intuition that fixed costs -in particular, per-title fixed costs are much lower at online stores than at conventional stores and that the welfare gains from electronic commerce are likely to be underestimated if one ignores changes in product variety.

Suggested Citation

  • Guillermo Israilevich, 2008. "Fixed Costs, Product Variety, an Welfare on the Internet," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 23(2), pages 121-141, Diciembre.
    • Handle: RePEc:ila:anaeco:v:23:y:2008:i:2:p:121-141
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    More about this item

    Keywords

    Fixed Costs; Product Variety; Electronic Commerce; Welfare; Internet.;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L00 - Industrial Organization - - General - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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