Identifying Consumer-Welfare Changes when Online Search Platforms Change Their Lists of Search Results. (Slides)

Abstract: Online search platforms influence product demand through their choices of how to order search results in response to their users’ queries. I study the identification of consumer-welfare changes in response to exogenous changes in these choices. I focus on the case of consumers engaging in costly searches for a single, indivisible (discrete) product among a collection of substitutes. I show that exact consumer-welfare changes–that is, compensating variation and equivalent variation–can be calculated with the use of straightforward integrals of the aggregate demand. I apply my results to shopping data provided by an online travel agency (OTA). I estimate that when the OTA changes the way it orders search results from random to its proprietary method, welfare improves by an average of $8.11 per user. I estimate an average welfare loss of $23.87 per user when the OTA removes the top five products from all of its search-result lists.

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