Gains from Product Variety: Evidence From a Large Digital Platform

Digital platforms can increase product variety and consumer choice by facilitating the discovery and availability of new products. In this paper, we documOur results highlight both the massive increase in product variety and the importance of accounting for differences in price elasticity across products. We also examine the geographic variation in gains from variety and find that consumers in rural and low-income regions enjoy larger gains from the digital platform.ent the massive growth of new products on the largest digital platform in China and quantify the welfare implications for consumers. Using sales data on three categories of books from 2015 and 2019, we find that the number of product titles almost doubles, whereas prices fall somewhat. Most of the new products are niche products sold to consumers with unusual tastes. We estimate that demand for these niche products is more than 20% more inelastic than that of mass products. Embedding the estimates of demand elasticity into a two-segment constant elasticity of substitution framework, we find the gain from increased variety is more than the total expenditure on books in 2019 and about 40 times larger than the gain from lower prices. This welfare gain is 30% higher compared with the existing approach that does not distinguish mass and niche products.

Our results highlight both the massive increase in product variety and the importance of accounting for differences in price elasticity across products. We also examine the geographic variation in gains from variety and find that consumers in rural and low-income regions enjoy larger gains from the digital platform.