Showing papers by "Glenn Ellison published in 2009"

Search, obfuscation, and price elasticities on the internet

Abstract: We examine the competition between a group of Internet retailers who 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 some other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically.

A Search Cost Model of Obfuscation

Abstract: This paper develops search-theoretic models in which it is individually rational for firms to engage in obfuscation. It considers oligopoly competition between firms selling a homogeneous good to a population of rational consumers who incur search costs to learn each firm's price. Search costs are endogenized: obfuscation is equated with unobservable actions that make it more time-consuming to inspect a product and learn its price. We note two mechanisms by which obfuscation can affect consumer beliefs about future search costs: a direct effect that applies when search costs are convex in time spent searching and a signal-jamming effect that applies when an informational link is present. As long as obfuscation is costless for firms, the presence of either of these mechanisms guarantees that obfuscation must occur in equilibrium, unless consumer search costs are already so high that consumers are willing to purchase at the highest equilibrium price in the absence of obfuscation. Changes in consumer search costs are at least partially offset by changes in the equilibrium level of obfuscation, raising doubts about whether reductions in consumer search costs must make markets more competitive. We also examine patterns of obfuscation and show that higher markups are usually associated with more obfuscation.

Position Auctions with Consumer Search

Abstract: This paper examines a model in which advertisers bid for "sponsored-link" positions on a search engine. The value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about firm qualities and search optimally. Consumer search strategies, equilibrium bidding, and the welfare benefits of position auctions are analyzed. Implications for reserve prices and a number of other auction design questions are discussed.

Tax Sensitivity and Home State Preferences in Internet Purchasing

Abstract: Data on memory modules sales are used to explore aspects of e-retail demand. Aggregate sales are examined in state-level regressions. Discrete choice techniques are used to examine (incomplete ) hourly sales data from a price comparison site. We find a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from offline retailers, suggesting substantial online- offline substitution and the importance of tax avoidance motives. Geography matters in two ways: consumers prefer purchasing from firms in nearby states and appear to have a separate preference for buying from in-state firms. ( JEL D12, H25, H71, L81)

A Search Cost Model of Obfuscation

Abstract: This paper develops search-theoretic models in which it is individually rational for firms to engage in obfuscation. It considers oligopoly competition between firms selling a homogeneous good to a population of rational consumers who incur search costs to learn each firm's price. Search costs are endogenized: obfuscation is equated with unobservable actions that make it more time-consuming to inspect a product and learn its price. We note two mechanisms by which obfuscation can affect consumer beliefs about future search costs: a direct effect that applies when search costs are convex in time spent searching and a signal-jamming effect that applies when an informational link is present. As long as obfuscation is costless for firms, the presence of either of these mechanisms guarantees that obfuscation must occur in equilibrium, unless consumer search costs are already so high that consumers are willing to purchase at the highest equilibrium price in the absence of obfuscation. Changes in consumer search costs are at least partially offset by changes in the equilibrium level of obfuscation, raising doubts about whether reductions in consumer search costs must make markets more competitive. We also examine patterns of obfuscation and show that higher markups are usually associated with more obfuscation.

Search, obfuscation, and price elasticities

Abstract: We examine the competition between a group of Internet retailers who 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 pricesensitive. Retailers, though, engage in obfuscation - practices that frustrate consumer search or make it less damaging to firms - resulting in much less price sensitivity on some other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically.

The Gender Gap in Secondary School Mathematics at High Achievement Levels: Evidence from the American Mathematics Competitions

Abstract: This paper uses a new data source, American Mathematics Competitions, to examine the gender gap among high school students at very high achievement levels. The data bring out several new facts. There is a large gender gap that widens dramatically at percentiles above those that can be examined using standard data sources. An analysis of unobserved heterogeneity indicates that there is only moderate variation in the gender gap across schools. The highest achieving girls in the U.S. are concentrated in a very small set of elite schools, suggesting that almost all girls with the ability to reach high math achievement levels are not doing so.