The Welfare Effects of E-Commerce and Entry in U.S. Retail

Stanford University, Stanford CA

Investigators

Abstract

The research team will use a unique data set to analyze competition in U.S. retailing, data on billions of credit card transactions. The first project will look at the impact of e-commerce with a focus on which consumers benefit the most from the growth in internet commerce. A second project uses the same data source to examine retail entry and how new stores grow and acquire customers. They want to characterize the growth of new retail outlets, the extent to which a new store will pull sales away from competitors, and the benefit to consumers from new store openings. This project will increase our understanding of consumer spending and retail competition in the United States. The results will be able to guide policymakers; policies that affect internet commerce and traditional retailing have a substantial effect on the U.S. economy. The first project evaluates the impact of e-commerce on consumer welfare. The PIs develop a model in which consumers choose an optimal bundle of merchants to shop at, allowing imperfect substitution between online and offline transactions. They will use the data to estimate the model?s parameters and obtain quantitative estimates of welfare gains associated with the expansion of e-commerce. They will also consider how those kinds are distributed across different classes of consumers. The second project examines retail entry. The PIs use a discrete choice demand model for stores, using detailed data on store and customer location and the date a new store opens to obtain distance elasticities for each for each merchant and consumer type. These are then mapped to estimates of consumer welfare.