Topics in E-commerce

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Hyatt Regency Chicago, Burnham
Hosted By: Econometric Society
  • Chair: Francesco Decarolis, Boston University and Einaudi Institute for Economics and Finance

Sales Tax, E-commerce, and Amazon's Fulfillment Center Network

Peter Newberry
,
Pennsylvania State University
Jean-Francois Houde
,
Cornell University
Katja Seim
,
University of Pennsylvania

Abstract

We estimate the cost savings associated with the expansion of Amazon’s fulfillment center network from 2006-2018. We first demonstrate that, in placing a fulfillment center in a new state, Amazon faces a trade-off between the revenue considerations from exposing local customers to sales tax and the cost savings from reducing the shipping distance to those customers. Using detailed data on online transactions, we estimate a model of demand for retail goods and show that consumers’ online shopping is sensitive to being charged sales tax. We then use the demand estimates and the spatial distribution of demand relative to Amazon’s fulfillment centers to produce predicted revenues and shipping distances under the observed fulfillment center roll-out and under counterfactual roll-outs over this time period. Using a moment inequalities approach, we infer the cost savings associated with being closer to customers that render the observed network roll-out optimal. We find that Amazon saves between $0.40 and $1.30 for every 100 miles of $100 of goods shipped.

A Theory of Discounts and Deadlines in Retail Search

Brennan Christopher Platt
,
Brigham Young University
Dominic Coey
,
eBay Research Labs
Bradley Larsen
,
Stanford University

Abstract

We present a new equilibrium search model where consumers face deadlines to obtain a retail product. Buyers initially search among discount opportunities, but are willing to pay more over time and eventually shift their search to full-price sellers. Even with homogeneous sellers and buyers, the model predicts equilibrium price dispersion and rationalizes the coexistence of both discount and non-discount sales mechanisms. We apply the model to online retail sales via auctions and posted prices; using data on one million listings for new-in-box items on eBay.com, we find robust evidence consistent with our model. As predicted, bidders increase their bids from one buying opportunity to the next, equilibrium price dispersion exists, and auctions and posted-price listings coexist. Fitting the model to the data, we find that the presence of the discount channel increases total welfare by 1.8% of the average retail price if intermediation is costly, but reduces welfare by 2.3% if intermediation is costless.

Product Variety, Across Market Demand Heterogeneity, and the Value of Online Retail

Kevin R. Williams
,
Yale University
Thomas Quan
,
University of Georgia

Abstract

Online retail gives consumers access to an astonishing variety of products. However, the additional value created by this variety depends on the extent to which local retailers already satisfy local demand. To quantify the gains and account for local demand, we use detailed data from an online retailer and propose methodology to address a common issue in such data - sparsity of local sales due to sampling and a significant number of local zeros. Our estimates indicate products face substantial demand heterogeneity across markets; as a result, we find gains from online variety that are 30% lower than previous studies.

Marketing Agencies and Collusive Bidding in Sponsored Search Auctions

Francesco Decarolis
,
Boston University and Einaudi Institute for Economics and Finance
Maris Goldmanis
,
University of London

Abstract

The transition of the advertisement market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions used to sell advertisement space on the web. We analyze how bidding delegation to a common marketing agency undermines both revenues and efficiency of the generalized second price auction, the format used by Google and Microsoft-Yahoo!. We characterize losses relative to the case of both full competition and agency-coordination under an alternative auction format (VCG mechanism). We propose a criterion to detect bid coordination and apply it to data from a major search engine.
Discussant(s)
Fanyin Zheng
,
Columbia University
Maher Said
,
New York University
Ying Fan
,
University of Michigan
Robert Porter
,
Northwestern University
JEL Classifications
  • C0 - General