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

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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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    Cited by:

    1. Kopalle, Praveen & Biswas, Dipayan & Chintagunta, Pradeep K. & Fan, Jia & Pauwels, Koen & Ratchford, Brian T. & Sills, James A., 2009. "Retailer Pricing and Competitive Effects," Journal of Retailing, Elsevier, vol. 85(1), pages 56-70.
    2. Ratchford, Brian T., 2009. "Online Pricing: Review and Directions for Research," Journal of Interactive Marketing, Elsevier, vol. 23(1), pages 82-90.
    3. Kaiquan Xu & Jason Chan & Anindya Ghose & Sang Pil Han, 2017. "Battle of the Channels: The Impact of Tablets on Digital Commerce," Management Science, INFORMS, vol. 63(5), pages 1469-1492, May.
    4. 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.
    5. Erik Brynjolfsson & Yu (Jeffrey) Hu & Mohammad S. Rahman, 2009. "Battle of the Retail Channels: How Product Selection and Geography Drive Cross-Channel Competition," Management Science, INFORMS, vol. 55(11), pages 1755-1765, November.
    6. 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.
    7. Chris Forman & Anindya Ghose & Avi Goldfarb, 2009. "Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live," Management Science, INFORMS, vol. 55(1), pages 47-57, January.
    8. Jason Allen & Robert Clark & Jean-François Houde, 2008. "Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry," Staff Working Papers 08-32, Bank of Canada.
    9. Laurina Zhang, 2018. "Intellectual Property Strategy and the Long Tail: Evidence from the Recorded Music Industry," Management Science, INFORMS, vol. 64(1), pages 24-42, January.
    10. Grewal, Dhruv & Janakiraman, Ramkumar & Kalyanam, Kirthi & Kannan, P.K. & Ratchford, Brian & Song, Reo & Tolerico, Stephen, 2010. "Strategic Online and Offline Retail Pricing: A Review and Research Agenda," Journal of Interactive Marketing, Elsevier, vol. 24(2), pages 138-154.
    11. Chiou, Lesley & Kafali, E. Nilay & Rysman, Marc, 2020. "Internet use, competition, and geographical rescoping in Yellow Pages advertising," Information Economics and Policy, Elsevier, vol. 52(C).
    12. 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.

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    JEL classification:

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

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