This award funds research investigating basic questions in the study of markets. How do buyers respond to changes in prices and sales mechanisms? How do selling mechanisms evolve over time? How does the volume of trade respond to changes in sales taxes? The researchers address these questions in the context of a large internet marketplace using rich data.
The last decade has seen a dramatic rise in the scale and importance of internet markets and platforms. Increasingly, retail commerce, advertising, social activity, job search and financial transactions take place online. What features of these new online markets are novel? What can we learn about individual behavior, competition and market forces from the vast and detailed data being collected by internet companies?
This project studies a range of questions related to online commerce, and online behavior more generally. The team addresses three specific questions: (1) how to use the frequent experimentation that occurs in online markets to learn about consumer behavior and market outcomes; (2) what types of sales mechanisms are effective in online markets and how has that evolved over the last decade; (3) what are the implications of tax policy for online commerce and the geographic distribution of online trade.
An additional goal for this project is to develop and illustrate some research strategies that may be broadly applicable for economists using 'big data' from internet companies to study individual behavior and market interactions. We suspect that the use of this type of data is likely to become widespread in economics and social science research, and will require new tools and methods. The strategies described include ways of incorporating clickstream and listing data into economic analyses, and dealing effectively with the scale and heterogeneity inherent in large internet markets.
The research will yield broader impact by developing new answers to several problems of substantive policy interest. The effects of internet sales tax policy currently are subject to active debate at both the state and federal level. We also examine questions about the degree of competition in retail markets, and the types of frictions in these markets, which are often of interest for competition policy. Finally, we provide a range of evidence on consumer behavior in a marketplace with tens of millions of participants in the United States alone, a setting that has been one of the most active for studying hypotheses about consumer psychology and sophistication. This type of evidence has taken on increased importance with the growing influence of behavioral economics on public policy.
