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The Role of Quality in Internet Service Markets

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  • Elena Krasnokutskaya
  • Kyungchul Song
  • Xun Tang

Abstract

In online procurement markets, projects are often allocated through a mechanism that allows buyers to take into account a seller’s nonprice characteristics as well as his bid. We design a methodology to recover primitives of the environment in the presence of unobserved seller heterogeneity while accommodating two important features of such markets: buyer-specific choice sets and the high turnover of sellers. We apply our method to data from an online market for programming services, to assess buyers’ welfare gains associated with the globalization enabled by the internet. We find that the internet enables buyers to substantially improve on their outside (local) option; many of the gains arise from access to the international markets.

Suggested Citation

  • Elena Krasnokutskaya & Kyungchul Song & Xun Tang, 2020. "The Role of Quality in Internet Service Markets," Journal of Political Economy, University of Chicago Press, vol. 128(1), pages 75-117.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/703990
    DOI: 10.1086/703990
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    Cited by:

    1. Krasnokutskaya, Elena & Song, Kyungchul & Tang, Xun, 2022. "Estimating unobserved individual heterogeneity using pairwise comparisons," Journal of Econometrics, Elsevier, vol. 226(2), pages 477-497.

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