Internet retail demand : taxes, geography, and online-offline competition

2006·1.6 MB·English

by  Ellison, Glenn, 1965-

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4
DEWEY
HB31
.M415
Massachusetts Institute of Technology
Department of Economics
Working Paper Series
INTERNET RETAIL DEMAND: TAXES, GEOGRAPHY,
AND ONLINE-OFFLINE COMPETITION
Glenn Ellison
Sara Ellison
Working Paper 06-1
April 28, 2006
Room
E52-251
50 Memorial Drive
MA
Cambridge, 021 42
This paper can be downloaded without char ge from the
Social Science Research Network Paper Collection at
http;//ssrn,com/abstract=901852
MASSACHUSETTS INSTITUTE
OFTECHNOLOGV
JUN 2 2006
LIBRARIES
Internet Retail Demand:
Taxes, Geography, and Online-Offline Competition^
Glenn Ellison
MIT and NBER
and
Sara Fisher Ellison
MIT
April 2006
^We would like to thank Nathan Barczi, Eric Moos, and Andrew Sweeting for excellent research
assistance, Patrick Goebel and Steve Ellison for assistance with data issues, and Austan Goolsbee
and John Morgan for helpful comments. We also thank the Center for Advanced Studies in the Be-
havioral Sciences, the Hoover Institute, the Institute for Advanced Study, the Toulouse Network for
Information Technology, and the National Science Foundation (SES-0219205) for financial support.

Abstract
Data on sales of memory modules are used to explore several aspects of e-retail demand.
There is a strong relationship between e-retail sales to a given state and sales tax rates that
apply to purchases froin offline retailers. This suggests that there is substantial substitution
between online and offline retail, and tax avoidance may be an important contributor to
e-retail activity. Geography matters in two ways: we find some evidence that consumers
prefer purchasing from firms in nearby states to benefit from faster shipping times as well as
evidence of a separate preference for buying from in-state firms. Consumers appear fairly
rational in some ways, but boundedly rational in others.