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|Title: ||Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact|
|Authors: ||Ghose, Anindya|
|Keywords: ||publisher welfare|
|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.|
|Appears in Collections:||CeDER Published Papers|
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