Learning from Seller Experiments in Online Markets

Innovation and Economic Growth, Networks, the Internet, and Cloud Computing and Internet

Article Snapshot

Author(s)

Liran Einav, Theresa Kuchler, Jonathan Levin and Neel Sundaresan

Source

NBER Working Paper #17385, 2011

Summary

The authors show how online seller experiments can be used to address economic questions.

Policy Relevance

Online markets are uniquely well-suited for learning about consumer behavior, and may be used as a source of information about consumer preferences for policymakers.

Main Points

  • Sellers will often engage in experiments to learn about their market.  For example, they may change their prices or change how many units they bundle together for sale.
     
  • The Internet makes experimentation easier than it is in traditional markets; retailers can change prices, displays, and information provided to consumers quickly and repeatedly.

    • For example, an eBay seller may list an item multiple times with varying prices, or make some auctions “Buy it now” and others traditional timed auctions.
       
    • There are 100 million listings on eBay at any point in time, and more than half will appear again with modified parameters.
       
  • By observing seller experiments, economists can answer many questions, such as:

    • Do buyers bid too frequently, or overbid?
       
    • How do reserve prices affect actions?  What about selling items as “Buy it now”?
       
    • Do consumers underweight shipping fees when considering item costs?
       
  • The authors find that sellers vary prices, but consumers typically find and choose the lowest price.

    • However, consumers treat shipping fees as though they are lower than they are.

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