Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers

By Erik Brynjolfsson, Yu Jeffrey Hu, Michael D. Smith. Management Sciences, 2003

1,364 citations recorded by the source corpus.

We present a framework and empirical estimates that quantify the economic impact of increased product variety made available through electronic markets. While efficiency gains from increased competition significantly enhance consumer surplus, for instance, by leading to lower average selling prices, our present research shows that increased product variety made available through electronic markets can be a significantly larger source of consumer surplus gains.One reason for increased product variety on the Internet is the ability of online retailers to catalog, recommend, and provide a large number of products for sale. For example, the number of book titles available at Amazon.com is more than 23 times larger than the number of books on the shelves of a typical Barnes & Noble superstore, and 57 times greater than the number of books stocked in a typical large independent bookstore.Our analysis indicates that the increased product variety of online bookstores enhanced consumer welfare by $731 million to $1.03 billion in the year 2000, which is between 7 and 10 times as large as the consumer welfare gain from increased competition and lower prices in this market. There may also be large welfare gains in other SKU-intensive consumer goods such as music, movies, consumer electronics, and computer software and hardware.

Subfields: Management Science and Operations Research, Marketing, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/92a7b382c777e524b4d38cf71d238d60fbfa4eea

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Citations in the corpus

Estimating Demand for Mobile Applications in the New Economy (2014, background): “1993, Petrin 2002), computers (Greenstein 1994), cellular phones (Hausman 1999), books (Brynjolfsson et al. 2003), direct broadcast satellites and cable TV (Goolsbee and Petrin 2004), and elsewhere.”
A Thematic Exploration of Digital, Social Media, and Mobile Marketing: Research Evolution from 2000 to 2015 and an Agenda for Future Inquiry (2016, background): “Brynjolfsson, Hu, and Smith (2003) extended this thinking to argue that the vast variety available online was a boon to consumer well-being, in part, but not only, because online markets created greater price competition: “ The increased product variety of online book-stores enhanced consumer…”
Content or Community? A Digital Business Strategy for Content Providers in the Social Age (2013, background): “However, researchers have stressed that this may result in lower perceived value of the free content, causing lower demand levels (Brynjolfsson et al. 2003; Fitzsimons and Lehmann 2004; for opposing results see Zeithaml 1988), as well as slower growth of the consumer base for the free service (Pauwe”
How Does the Variance of Product Ratings Matter? (2012, methodology): “The underlying data generating process is assumed to be A02 log4RankJit5 = Ji + vi +X × â J +ìJi ×é J + Jit1 J ∈ 8A1B90 Consistent with previous studies (e.g., Chevalier and Mayzlin 2006, Brynjolfsson et al. 2003), we use log sales rank on the left-hand side as a linear proxy for log sales.”
Collaborative competitive filtering: learning recommender using context of user choice (2011, background): “Indeed, this data sparseness issue has been widely recognized as a key challenge for constructing eﬀective recommender systems.”
Empirical Analysis of the Impact of Recommender Systems on Sales (2010, background): “Because sales quantity is not publicly available, we turn to the literature that develops models to derive sales quantity from sales rank [8, 11].”
A new user similarity model to improve the accuracy of collaborative filtering (2014, methodology): “In this regard, recommender systems are used to recommend information of user expectations and provide personalized services through analyzing the user behaviors, such as the recommendation of photo groups in Flickr [1], the books in Amazon [2], videos in YouTube [3], and results in the Web search [”
Global Village or Cyber-Balkans? Modeling and Measuring the Integration of Electronic Communities (2005, background): “Indeed, online bookstores sell relatively more esoteric books, and relatively fewer mass-market books, than offline bookstores, reflecting their more sophisticated search and recommendation tools and the broader selection of titles that they provide (Brynjolfsson et al. 2003).”
Show Me the Way to Go Home: An Empirical Investigation of Ride-Sharing and Alcohol Related Motor Vehicle Fatalities (2017, background): “…to advance platform theory (Birkland and Lawrence 2009), or focused on more traditional examples of Internet platforms such as eBay or Amazon.com (Brynjolfsson et al. 2003; Chevalier and Goolsbee 2003; Forman et al. 2008), a recent burgeoning literature on the societal impact of platforms has…”
The dynamics of viral marketing (2005, background): “com, somewhere between 20 to 40 percent of unit sales fall outside of its top 100,000 ranked products [2].”
Using Big Data to Estimate Consumer Surplus: The Case of Uber (2016, background): “6 welfare impacts on consumers are Petrin (1999), Nevo (2000), Brynjolfsson et al. (2003), Goolsbee and Petrin (2004), Mortimer (2007), Crawford and Yurukoglu (2012), Quan and Williams (2014), and Crawford et al. (2015).”