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  5. Pricing and Demand with Digital/Online Markets
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Pricing and Demand with Digital/Online Markets

Paper Session

Saturday, Jan. 6, 2024 8:00 AM - 10:00 AM (CST)

Grand Hyatt, Republic A
Hosted By: Econometric Society
  • Chair: Pierre Dubois, Toulouse School of Economics

Sources of Limited Consideration and Market Power in E-commerce

Michael Rolland Sullivan
,
Western University

Abstract

Consumers conduct little search in e-commerce and often pay significantly above the minimum available price for a product. Search costs could explain these facts, as could pre-search seller differentiation: consumers with low search costs may not visit stores they dislike based on information known before search. I assess these explanations with a consumer search and retailer pricing model that I estimate on data describing web browsing for contact lenses. My approach exploits the data's panel structure in estimating the extent of state dependence and taste heterogeneity. I find that seller differentiation is primarily responsible for limited consideration and market power.

Reliability and Pricing in Cloud Computing

James Brand
,
Microsoft
Juan Camilo Castillo
,
University of Pennsylvania
Chinmay Lohani
,
University of Pennsylvania
Leon Andreas Musolff
,
University of Pennsylvania

Abstract

Abstract
Cloud providers face the challenge of managing the mismatch between fixed capacity and volatile demand. To address this issue, they rely on quality differentiation, offering products with availability guarantees and products on which a user may be ‘evicted’ any moment. This paper analyzes the welfare implications of quality differentiation in cloud computing, comparing it with traditional strategies like peak-load pricing and rationing. Using anonymized data from one of the largest cloud providers, we develop and estimate an empirical model of a cloud computing market, including supply and demand sides. The supply side model predicts eviction probabilities based on capacity and utilization, while the demand side leverages experimental variation in prices and quasi-experimental variation in evictions to estimate price elasticities, cross elasticities, disutility of eviction, and priors over eviction rates. Our results contribute to a better understanding of the welfare trade-offs, consumer surplus, and profits associated with quality differentiation and the allocation mechanisms used in the cloud computing industry.

Dynamic Pricing, Intertemporal Spillovers, and Efficiency

Alexander MacKay
,
Harvard University
Dennis Svartbäck
,
Priceff
Anders G. Ekholm
,
University of Helsinki

Abstract

Pricing technology that allows firms to rapidly adjust prices has two potential benefits. Time-varying prices can respond to high-frequency demand shocks to generate greater revenues, and they can also be used to smooth out demand to reduce costs. Using data from the staggered adoption of a pricing algorithm, we measure the impacts of time-varying pricing in the context of restaurant food delivery. On average, the pricing algorithm reduced prices, though it led to substantial variation in prices within and across days. We find that the adoption of time-varying pricing reduced demand volatility, resulting in a relative increase in the share of transactions occurring during low-demand periods. We estimate that the volatility semi-elasticity, which we define to reflect the relationship between time-series variation in quantities and prices, is $-1.96$. This parameter is influenced by the presence of intertemporal spillovers in demand. Consumers appear to strategically time purchases across hours of the week and at higher frequencies (within the hour). Our analysis suggests that production costs fell and consumer welfare increased after adoption, highlighting potential efficiency gains of dynamic pricing algorithms.
JEL Classifications
  • C1 - Econometric and Statistical Methods and Methodology: General