DP14864 Evaluating the Impact of Online Market Integration - Evidence from the EU Portable PC Market

Author(s): Nestor Duch-Browne, Lukasz Grzybowski, André Romahn, Frank Verboven
Publication Date: June 2020
Date Revised: July 2020
Keyword(s): geoblocking, market integration, online trade restrictions, PC industry
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14864

We develop a framework to evaluate the impact of market integration, accounting for spillovers between multiple distribution channels. Our adaptation of the standard random coefficients logit demand model allows for substitution between distribution channels and incorporates consumer arbitrage across countries. We apply our framework to the European portable PC market, where geo-blocking practices that restrict online trade have recently been banned. The total consumer and welfare gains from reducing cross-border arbitrage costs are relatively modest, and entirely due to increased product choice rather than reduced price discrimination. At the same time, the distributional effects from the cross-country price convergence are substantial. Consumers in high income countries gain most, while consumers in medium and low income countries are only marginally better or even worse off.