Competition in the Computer Industry: Online Versus Retail

Abstract

This paper estimates the price sensitivity of individuals’ choice of whether to buy computers online versus in retail stores using a new data source on the computer purchases of more than 20,000 people. The paper first fits hedonic regressions for the retail price of computers in a local area and then examines how that price influences the probability of buying online. The results indicate that the decision is sensitive to the relative price of retail computers and it varies by type of customer and type of computer. Conditional on buying a computer, the elasticity of buying remotely with respect to retail store prices is about 1.5.

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