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Identifying Consumer-Welfare Changes when Online Search Platforms Change Their List of Search Results

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  • Ryan Martin

Abstract

Online shopping is often guided by search platforms. Consumers type keywords into query boxes, and search platforms deliver a list of products. Consumers' attention is limited, and exhaustive searches are often impractical. Thus, the order in which products appear in search results affects the products consumers discover and ultimately purchase. In this setting, I study the identification of consumer-welfare changes in response to exogenous changes in search-result lists. I focus on the case of consumers engaging in costly searches for a single, indivisible (discrete) product among a collection of substitutes. I show that exact consumerwelfare changes—that is, compensating variation and equivalent variation—can be calculated with the use of straightforward integrals of the aggregate demand. I apply my results to shopping data provided by an online travel agency (OTA). I estimate that when the OTA changes search results from random to its proprietary listing structure, welfare improves by an average of $8.84 per user. I estimate an average welfare loss of $20.51 per user when the OTA removes the top five products from all of its search-result lists.

Suggested Citation

  • Ryan Martin, 2020. "Identifying Consumer-Welfare Changes when Online Search Platforms Change Their List of Search Results," Staff Working Papers 20-5, Bank of Canada.
    • Handle: RePEc:bca:bocawp:20-5
    DOI: 10.34989/swp-2020-5
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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