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Abstract

To help consumers make choices from a large number of alternatives, e-commerce platforms provide them with information about historical sales. However, the effects of disclosing sales information on consumers' search decisions and welfare are unclear. Furthermore, revealing sales information can make popular products more attractive to subsequent consumers due to the revealed popularity. This positive feedback loop leads to concerns about the fairness of competition in online marketplaces when some sellers are able to influence the short-term popularity of their products, particularly if a seller is also the marketplace operator. I use novel click-stream data on consumers that search for specific books on a large online book-selling platform and find that popular products attract more clicks. Conditional on clicking, sales information does not affect consumers' purchasing decisions significantly. This finding confirms that sales information serves as a proxy signal for product-page attributes that consumers do not see without a costly search of the product. In counterfactual experiments, I first show that disclosing sales information has uncertain effects on consumer welfare. Making the initial group of consumers search under random rankings benefits subsequent consumers by disclosing sales information. Second, I find that the initial position of a product affects its sales volume in subsequent periods when sales information is disclosed. This confirms that the feedback loop exists if sales information is available. Then, I specifically focus on products sold by the first-party seller and find that compared to ranking products by their mean utilities, assigning these products top positions in the initial periods leads to persistently more sales for the first-party seller even though products are fairly ranked by sales volume after the initial periods. These findings provide platforms with managerial tools to disclose sales information that benefits consumers. The findings also give insights into the recent concerns about the fairness of competition on e-commerce platforms between first-party and third-party sellers.

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