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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27750
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| Title: | Internet Exchanges for Used Books: An Empirical Analysis of Product
Cannibalization and Welfare Impact |
| Authors: | Ghose, Anindya
Smith, Michael
Telang, Rahul |
| Keywords: | publisher welfare
retailer welfare
consumer surplus
price competition
used-book sales
electronic markets |
| Issue Date: | 6-Nov-2008 |
| Series/Report no.: | CeDER-PP-2006-07 |
| Abstract: | Information systems and the Internet have facilitated the creation of
used-product markets that feature a dramatically wider selection, lower
search costs, and lower prices than their brick-and-mortar counterparts
do. The increased viability of these used-product markets has caused
concern among content creators and distributors, notably the Association
of American Publishers and Author’s Guild, who believe that
used-product markets will significantly cannibalize new product sales.
This proposition, while theoretically possible, is based on speculation
as opposed to empirical evidence. In this paper, we empirically analyze
the degree to which used products cannibalize new-product sales for
books—one of the most prominent used-product categories sold
online. To do this, we use a unique data set collected from
Amazon.com’s new and used book marketplaces to measure the degree
to which used products cannibalize new-product sales. We then use these
estimates to measure the resulting first-order changes in publisher
welfare and consumer surplus. Our analysis suggests that used books are
poor substitutes for new books for most of Amazon’s customers. The
cross-price elasticity of new-book demand with respect to used-book
prices is only 0.088. As a result, only 16% of used-book sales at Amazon
cannibalize new-book purchases. The remaining 84% of used-book sales
apparently would not have occurred at Amazon’s new-book prices.
Further, our estimates suggest that this increase in book readership
from Amazon’s used-book marketplace increases consumer surplus by
approximately $67.21 million annually. This increase in consumer
surplus, together with an estimated $45.05 million loss in publisher
welfare and a $65.76 million increase in Amazon’s profits, leads
to an increase in total welfare to society of approximately $87.92
million annually from the introduction of used-book markets at Amazon.com. |
| URI: | http://hdl.handle.net/2451/27750 |
| Appears in Collections: | CeDER Published Papers
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