Clicks, Discontinuities, and Firm Demand Online

Authors


  • We are grateful to a coeditor and two referees for suggestions that substantially improved this offering. We thank Jennifer Brown and Nels Leader for research assistance, and Patrick Scholten for helpful conversations. We also thank seminar participants at Berkeley, the Canadian Competition Bureau, FTC, Harvard-MIT, Indiana, Louisville, New York University, Temple, Virginia, and participants at the IIOC meetings in Atlanta. Research support from the ESRC and NSF are gratefully acknowledged.

Abstract

We exploit a unique dataset from a price comparison site 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, and failure to account for discontinuities distorts parameter estimates by nearly 100%. This discontinuity is consistent with a variety of models that have been used to rationalize online price dispersion. Finally, we show that one may use estimates of the determinants of a firm's clicks to obtain bounds on its underlying demand parameters, including standard elasticities of demand.

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