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Clicks, Discontinuities, and Firm Demand Online

  • 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)

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://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2006-21-baye-gatti-kattuman-morgan.pdf
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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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