Category Archives: Research Papers

Search with Learning for Differentiated Products: Evidence from E-Commerce

(Dr. Babur De Los Santos with Ali Hortaçsu and Matthijs R. Wildenbeest, Journal of Business & Economic Statistics, forthcoming)

 

This paper provides a method to estimate search costs in a differentiated product environment in which consumers are uncertain about the utility distribution. Consumers learn about the utility distribution by Bayesian updating their Dirichlet process prior beliefs. The model provides expressions for bounds on the search costs that can rationalize observed search and purchasing behavior. Using individual-specific data on web browsing and purchasing behavior for MP3 players sold online we show how to use these bounds to estimate search costs as well as the parameters of the utility distribution. Our estimates indicate that search costs are sizable. We show that ignoring consumer learning while searching can lead to severely biased search cost and elasticity estimates.

 

Download This Paper

E-book Pricing and Vertical Restraints

(Dr. Babur De Los Santos with Matthijs R. Wildenbeest)

 

This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010 five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers’ ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross- publisher variation in the timing of the return to the traditional wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.

Download This Paper

Searching for Physical and Digital Media: The Evolution of Platforms for Finding Books

(Dr. Babur De Los Santos with Michael R. Baye and and Matthijs R. Wildenbeest, in NBER’s Economic

Analysis of the Digital Economy, ed. by S. Greenstein, A. Goldfarb, and C. Tucker.

University of Chicago Press, May 2015.)

 

This chapter provides a data-driven overview of the different online platforms that consumers use to search for books and booksellers, and documents how the use of these platforms is shifting over time. Our data suggest that, as a result of digitization, consumers are increasingly conducting searches for books at retailer sites and closed systems (e.g., the Kindle and Nook) rather than at general search engines (e.g., Google or Bing). We also highlight a number of challenges that will make it difficult for researchers to accurately measure internet-based search behavior in the years to come. Finally, we highlight a number of open agenda items related to the pricing of books and other digital media, as well as consumer search behavior.

 

Download This Paper