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Search, Obfuscation, and Price Elasticities on the Internet

  • Glenn Ellison
  • Sara Fisher Ellison

We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation---practices that frustrate consumer search or make it less damaging to firms---resulting in much less price sensitivity on other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10570.

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Date of creation: Jun 2004
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Publication status: published as Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03.
Handle: RePEc:nbr:nberwo:10570
Note: IO
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  1. Deneckere, R. & McAfee, R.P., 1995. "Damaged Goods," Working papers 9508, Wisconsin Madison - Social Systems.
  2. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
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  13. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  14. Duncan Simester, 1995. "Signalling Price Image Using Advertised Prices," Marketing Science, INFORMS, vol. 14(2), pages 166-188.
  15. 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.
  16. 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.
  17. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
  18. Smith, Michael D & Brynjolfsson, Erik, 2001. "Consumer Decision-Making at an Internet Shopbot: Brand Still Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 541-58, December.
  19. repec:dgr:uvatin:20000042 is not listed on IDEAS
  20. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
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