Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/iuk/wpaper/2011-04.html
   My bibliography  Save this paper

Comparison Sites

Author

Listed:
  • Jose Luis Moraga-Gonzalez

    (ICREA, IESE Business School, and University of Groningen)

  • Matthijs R. Wildenbeest

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract
Web search technologies are fundamental tools to easily navigate through the huge amount of information available in the Internet. One particular type of search technologies are the so- called shopbots, or comparison sites. The emergence of Internet shopbots and their implications for price competition and market efficiency are the focus of this chapter. We develop a simple model where a price comparison site tries to attract (possibly vertically and horizontally differentiated) online retailers on the one hand, and consumers on the other hand. The analysis of the model reveals that differentiation among the products of the retailers as well as their ability to price discriminate between on- and off-comparison-site consumers play a critical role. When products are homogeneous, if online retailers cannot charge different on- and off-the-comparison- site prices, then the comparison site has incentives to charge fees so high that some firms are excluded, which generates price dispersion and an inefficient outcome. By contrast, when on- and off-comparison-site prices can be different, the comparison site attracts all the players to the platform and the allocation is efficient. A similar result obtains when products are horizontally differentiated. In that case, the comparison site becomes an aggregator of product information and no matter whether firms can price discriminate or not, the comparison site attracts all the players to the platform and an efficient outcome ensues. We argue that the lack of vertical product differentiation may also be critical for this efficiency result. In fact, we show that when quality differences are large, the comparison site may find it profitable to charge fees such that low quality producers are excluded, thereby inducing an inefficient outcome.

Suggested Citation

  • Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2011. "Comparison Sites," Working Papers 2011-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2011-04
    as

    Download full text from publisher

    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2011-04-moraga-gonzalez-wildenbeest.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, February.
    2. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    3. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    4. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    5. Yonghong An & Michael R. Baye & Yingyao Hu & John Morgan & Matt Shum, 2017. "Identification and Estimation of Online Price Competition With an Unknown Number of Firms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(1), pages 80-102, January.
    6. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    7. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    8. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    9. Yonghong An & Michael R. Baye & Yingyao Hu & John Morgan & Matt Shum, 2010. "Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects," Economics Working Paper Archive 564, The Johns Hopkins University,Department of Economics.
    10. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages 309-328, November.
    11. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    12. Volker Nocke & Martin Peitz & Konrad Stahl, 2007. "Platform Ownership," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1130-1160, December.
    13. Gehrig, Thomas, 1993. "Intermediation in Search Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(1), pages 97-120, Spring.
    14. Yavas, Abdullah, 1994. "Middlemen in Bilateral Search Markets," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 406-429, July.
    15. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2006. "Did the Euro Foster Online Price Competition? Evidence from an International Price Comparison Site," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 265-279, April.
    16. repec:bla:jindec:v:49:y:2001:i:4:p:541-58 is not listed on IDEAS
    17. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    18. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    19. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    20. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 353-380, August.
    21. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    22. Michael R. Baye & John Morgan, 2009. "Brand and Price Advertising in Online Markets," Management Science, INFORMS, vol. 55(7), pages 1139-1151, July.
    23. Kfir Eliaz & Ran Spiegler, 2011. "A Simple Model of Search Engine Pricing," Economic Journal, Royal Economic Society, vol. 121(556), pages 329-339, November.
    24. Harold Demsetz, 1968. "The Cost of Transacting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(1), pages 33-53.
    25. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
    26. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    27. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    28. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 947-972.
    29. Watanabe, Makoto, 2010. "A model of merchants," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1865-1889, September.
    30. 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.
    31. Abdullah Yavaş, 1996. "Search and Trading in Intermediated Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 195-216, June.
    32. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, June.
    33. Jean-Charles Rochet Author-Email:rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sandro Shelegia & Chris M. Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Vienna Economics Papers vie1406, University of Vienna, Department of Economics.
    2. Michael R. Baye & Babur De los Santos & Matthijs R. Wildenbeest, 2015. "Searching for Physical and Digital Media: The Evolution of Platforms for Finding Books," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 137-165, National Bureau of Economic Research, Inc.
    3. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
    2. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    3. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
    4. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    5. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    6. Paul Belleflamme & Martin Peitz, 2019. "Managing competition on a two‐sided platform," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 5-22, January.
    7. Oksana Loginova & Andrea Mantovani, 2019. "Price competition in the presence of a web aggregator," Journal of Economics, Springer, vol. 126(1), pages 43-73, January.
    8. Pieter Gautier & Bo Hu & Makoto Watanabe, 2023. "Marketmaking Middlemen," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 83-103, March.
    9. Javier Donna & Andre Trindade & Pedro Pereira & Tiago Pires, 2018. "Measuring the Welfare of Intermediation in Vertical Markets," 2018 Meeting Papers 984, Society for Economic Dynamics.
    10. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    11. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    12. Donna, Javier D. & Pereira, Pedro & Pires, Tiago & Trindade, Andre, 2018. "Measuring the Welfare of Intermediaries in Vertical Markets," MPRA Paper 90465, University Library of Munich, Germany.
    13. David Ronayne, 2021. "Price Comparison Websites," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1081-1110, August.
    14. Emilio Calvano & Bruno Jullien, 2012. "Issues in Online Advertising and Competition Policy: A Two-sided Market Perspective," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 9, Edward Elgar Publishing.
    15. Yangguang Huang, 2021. "Search Algorithm and Sales on Online Platforms: Evidence from Food Delivery Platforms," HKUST CEP Working Papers Series 202101, HKUST Center for Economic Policy.
    16. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
    17. Doh-Shin Jeon & Nikrooz Nasr, 2016. "News Aggregators and Competition among Newspapers on the Internet," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 91-114, November.
    18. Heiko Karle & Martin Peitz & Markus Reisinger, 2020. "Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2329-2374.
    19. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    20. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).

    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iuk:wpaper:2011-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rick Harbaugh (email available below). General contact details of provider: https://edirc.repec.org/data/dpiubus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.