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Internet Retail Demand: Taxes, Geography, and Online-Offline Competition

Author

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  • Glenn Ellison
  • Sara Fisher Ellison

Abstract

Data on sales of memory modules are used to explore several aspects of e-retail demand. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from online retailers. This suggests that there is substantial substitution between online and online retail, and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: we find some evidence that consumers prefer purchasing from firms in nearby states to benefit from faster shipping times as well as evidence of a separate preference for buying from in-state firms. Consumers appear fairly rational in some ways, but boundedly rational in others.

Suggested Citation

  • Glenn Ellison & Sara Fisher Ellison, 2006. "Internet Retail Demand: Taxes, Geography, and Online-Offline Competition," NBER Working Papers 12242, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12242
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    References listed on IDEAS

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    1. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    2. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 585-637.
    3. Baye, Michael & GATTI, RUPERT J & Kattuman, Paul & Morgan, John, 2004. "Estimating Firm-Level Demand at a Price Comparison Site: Accounting for Shoppers and the Number of Competitors," Competition Policy Center, Working Paper Series qt923692d1, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    4. Mitchel Y. Abolafia (ed.), 2005. "Markets," Books, Edward Elgar Publishing, number 2788.
    5. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
    6. Goolsbee, Austan, 2001. "Competition in the Computer Industry: Online versus Retail," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 487-499, December.
    7. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters,in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
    8. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
    9. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    10. Austan Goolsbee, 2000. "In a World Without Borders: The Impact of Taxes on Internet Commerce," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 561-576.
    11. 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.
    12. Hossain Tanjim & Morgan John, 2006. "...Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(2), pages 1-30, January.
    13. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-938, July.
    14. Glenn Ellison & Sara Fisher Ellison, 2005. "Lessons About Markets from the Internet," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 139-158, Spring.
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    Citations

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    Cited by:

    1. Jason Allen & Robert Clark & Jean-Fran├žois Houde, 2008. "Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry," Staff Working Papers 08-32, Bank of Canada.
    2. repec:eee:jouret:v:85:y:2009:i:1:p:56-70 is not listed on IDEAS
    3. repec:eee:joinma:v:23:y:2009:i:1:p:82-90 is not listed on IDEAS
    4. repec:eee:joinma:v:24:y:2010:i:2:p:138-154 is not listed on IDEAS
    5. Ahmed, Shamim & Wirjanto, Tony S., 2008. "The impact of sales taxation on internet commerce -- An empirical analysis," Economics Letters, Elsevier, vol. 99(3), pages 557-560, June.
    6. Chris Forman & Anindya Ghose & Avi Goldfarb, 2006. "Geography and Electronic Commerce: Measuring Convenience, Selection, and Price," Working Papers 06-15, NET Institute, revised Sep 2006.
    7. Chiou, Lesley & Muehlegger, Erich, 2008. "Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues," Working Paper Series rwp08-012, Harvard University, John F. Kennedy School of Government.

    More about this item

    JEL classification:

    • L8 - Industrial Organization - - Industry Studies: Services
    • D1 - Microeconomics - - Household Behavior
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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