DP15707 Gains from Convenience and the Value of E-commerce

Author(s): Bart Bronnenberg, Yufeng Huang
Publication Date: January 2021
Keyword(s): convenience, E-commerce, online/offline, retail, Transportation Costs
JEL(s): D12, L81, M31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15707

Why do consumers value shopping online? We decompose the value of e-commerce to individual consumers and highlight the role of convenience, i.e., the avoidance of transportation costs. We complement household purchase panel data with precise locations of consumers and stores, and show that travel distance is a strong driver of consumer store choice and the substitution to the online channel. Using a structural model of retailer and channel choice, we report that during 2016-2018 the total value from e-commerce to consumers is equivalent to a 23% discount on all prices. Of this value, a quarter comes from convenience in the form of lower transportation costs, a quarter from intensified price competition, and the remaining half from new online retailers and online channels of existing offline retailers. We further demonstrate that consumer gains are heterogeneous. Consumers far from offline stores or experienced in online shopping will benefit more from e-commerce, whereas consumers who likely do not shop online still benefit indirectly from price competition. Finally, our results show that, as consumers gain more online shopping experience, substantial additional gains from e-commerce are yet to materialize in the future.