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Measuring Prices and Price Competition Online: Amazon and Barnes and Noble

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Author Info
Judith A. Chevalier () (School of Management)
Austan Goolsbee () (Graduate School of Business)

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Abstract

Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quality. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a consumer price index for online books. The results show significant price sensitivity at both merchants but demand at Barnes and Noble is much more price-elastic than is demand at Amazon. The data also allows us to estimate the magnitude of retail outlet substitution bias in the CPI due to the rise of Internet sales. The estimates suggest that prices online are much more variable than the CPI, which understates inflation by more than double in one period and gets the sign wrong in another.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm290.

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Date of creation: 01 Aug 2002
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Handle: RePEc:ysm:somwrk:ysm290

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Find related papers by JEL classification:
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Smith, Michael D & Brynjolfsson, Erik, 2001. "Consumer Decision-Making at an Internet Shopbot: Brand Still Matters," Journal of Industrial Economics, Blackwell Publishing, vol. 49(4), pages 541-58, December. [Downloadable!] (restricted)
  2. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Working Papers 8271, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Austan Goolsbee, 2000. "In A World Without Borders: The Impact Of Taxes On Internet Commerce," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 561-576, May. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September. [Downloadable!] (restricted)
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  6. Glenn Ellison & Sara Fisher Ellison, 2004. "Search, Obfuscation, and Price Elasticities on the Internet," NBER Working Papers 10570, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  8. Carlton, Dennis W & Chevalier, Judith A, 2001. "Free Riding and Sales Strategies for the Internet," Journal of Industrial Economics, Blackwell Publishing, vol. 49(4), pages 441-61, December. [Downloadable!] (restricted)
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  9. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August. [Downloadable!] (restricted)
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