Match Quality, Search, and the Internet Market for Used Books
This paper examines the effect of the Internet on markets in which match-quality is important, including an analysis of the market for used books. A model in which sellers of unusual objects wait for high-value buyers to arrive brings out match quality and competition effects through which improved search technologies may increase both price dispersion and social welfare. A reduced-form empirical analysis finds support for a number of more nuanced predictions of the model in the context of the used book market, exploiting both cross-sectional differences across books and time-series differences in the wake of Amazon's acquisition and incorporation of a large used book marketplace. The paper develops a framework for structural estimation of a model based on the theory. The estimates suggest that the shift to Internet sales substantially increased both seller profits and consumer surplus.
We would like to thank Vivek Bhattacharya, Masao Fukui, Chen Lian, David Liu, and especially Hongkai Zhang for outstanding research assistance. We thank Panle Jia Barwick, Gabriel Carroll, and many seminar audiences for comments on an earlier drafts that led us to make substantial improvements to the paper. We thank the NBER Sloan Program on Digitization and the Toulouse Network for Information Technology for financial support, and the Paris School of Economics for their hospitality. The first author has received material financial support from the Toulouse Network for Information Technology. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- The advent of the online market for used books has raised prices but improved welfare for both sellers and buyers,...