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Michael R. Baye - Indiana University, Kelley School of Business. Bloomington, IN, US

Michael R. Baye Michael R. Baye

Professor of Business Economics & Public Policy | Indiana University, Kelley School of Business

Bloomington, IN, UNITED STATES

Professor Baye is an expert in antitrust issues, game theory, and pricing in online markets.

Secondary Titles (3)

  • Bert Elwert Professor of Business Economics and Public Policy, 1997-present
  • Co-Editor, Journal of Economics and Management Strategy, 2009-present
  • Director, Bureau of Economics at the U. S. Federal Trade Commission, 2007-2008



Michael R. Baye Publication Michael R. Baye Publication Michael R. Baye Publication



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Michael Baye is the Bert Elwert Professor of Business at Indiana University’s Kelley School of Business. He served as the Director of the Bureau of Economics at the US Federal Trade Commission during 2007 and 2008. Michael has won numerous awards for his outstanding teaching and research. His academic research focuses mainly on pricing strategies and their impact on consumer welfare and firm profits in both online and traditional markets. He has published over 75 articles and books on topics that include mergers, auctions, patents, advertising, information, game theory, online markets and other areas related to antitrust and consumer protection. Additionally, his academic research on pricing strategies in online markets has been featured in The Wall Street Journal, Forbes, and The New York Times. Michael has lectured and spoken at conferences and academic institutions throughout North America and Europe, and has held visiting appointments at Cambridge, Oxford, Erasmus University, Tilburg University, and the New Economic School in Moscow. In addition to his extensive academic publications and practical antitrust experience, he has also served on numerous editorial boards in economics as well as marketing.

Industry Expertise (6)

Public Policy



Oil and Gas



Areas of Expertise (8)

Industrial Organization


Game Theory

Antitrust Economics

Pricing and Online Markets

Pricing Analysis

Consumer Protection

Consumer Welfare Issues

Accomplishments (2)

Outstanding Researcher, Kelley School of Business (professional)

1999-2000; 2003-2004, 2009-2010

Teaching Excellence Award, Kelley School of Business (professional)

1997-1998; 1998-1999; 1999-2000

Education (3)

Purdue University: Ph.D, Economics 1983

Purdue University: M.S., Economics 1981

Texas A&M University: B.S., Economics 1980

Media Appearances (7)

Gadgets for Sale … or Not

Slate  online


Research supports Varian's view. In 2003, a group of economists led by Michael Baye of Indiana University compared prices for 36 consumer electronics products purchased online. Another study by the same team analyzed millions of price points for hundreds of products over an eight-month period. Both studies found significant price variation, regardless of how many retailers sold the product in question. What's more, they found that the site offering the lowest price for any given product was in constant flux, meaning that e-tailers were raising and lowering their prices at will. As a result, Baye's team came to the conclusion that price dispersion on the Internet is an "equilibrium phenomenon"—the natural state of a competitive market...

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The Next Generation Of Price-Comparison Sites

The Wall Street Journal  online


As Competition Heats Up, Services Add Protection From Fraud, Bigger Discounts...

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E-commerce: 'Net-style Nash Equilibrium

NetworkWorld  online


Five years ago, the first price-comparison Web sites were being hailed as heaven on earth for penny pinchers and the fast track to Hell for online merchants who failed to establish and protect a unique reason for being. That early assessment turns out to have been not so hot, says Michael Baye, an economics professor at the University of Indiana...

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Online retailers play pricing games

ZDNet  online


"A lot of early studies predicted that all firms would be forced to price their goods at cost and prices would be driven down," said Michael Baye, a professor of economics at Indiana University's Kelley School of Business. "That hasn't happened. There is still considerable price dispersion online."...

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Price-Comparison Sites Do the Legwork

The New York Times  online


''What you would expect, based on the prediction, is that prices would be declining over time, so that if we were to take a snapshot of prices today, they all would be closer to each other,'' said Michael R. Baye, an Indiana University business professor who has been studying online price differences for more than five years. ''But if you look today, you see that it's gone in the other direction.''

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Getting The Price Right

Forbes  online


It hasn’t quite happened that way, and the economic reasons behind it are interesting. When the cost of information–the cost in time and effort required to find the lowest price on a product–is zero, firms can react in a few ways, says economist Michael Baye of Indiana University. One way, he says, is to vary prices randomly.

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Economic Scene; The usual decorous waltz between prices and sales becomes a lively tango in the world of online sales

The New York Times  online


The economists Michael R. Baye and Patrick Scholten of Indiana University and John Morgan of the University of California at Berkeley have collected data from online price-comparison sites for over two years. They offer summaries of this information at www.nash-equilibrium.com...

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Articles (7)

Search Engine Optimization: What Drives Organic Traffic to Retail Sites?

Journal of Economics & Management Strategy

2016 The lion’s share of retail traffic through search engines originates from organic (natural) rather than sponsored (paid) links. We use a dataset constructed from over 12,000 search terms and 2 million users to identify drivers of the organic clicks that the top 759 retailers received from search engines in August 2012. Our results are potentially important for search engine optimization(SEO). We find that a retailer’s investments in factors such as the quality and brand awareness of its site increases organic clicks through both a direct and an indirect effect. The direct effect stems purely from consumer behavior: The higher the quality of an online retailer, the greater the number of consumers who click its link rather than a competitor in the list of organic results.The indirect effect stems from our finding that search engines tend to place higher quality sites in better positions, which results in additional clicks because consumers tend to click links in more favorable positions. We also find that consumers who are older, wealthier, conduct searches from work, use fewer words, or include a brand name product in their search are more likely to click ar etailer’s organic link following a product search. Finally, the quality of a retailer’s site appears to be especially important in attracting organic traffic from individuals with higher incomes. The beneficial direct and indirect effects of an online retailer’s brand equity on organic clicks, coupled with the spillover effects on traffic through other online and traditional channels, leads us to conclude that investments in the quality and brand awareness of a site should be included as part of an SEO strategy.

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The Economics of E-Commerce

2016 In his famous Internet Tidal Wave memo, Bill Gates wrote that “The Internet is the most important single development to come along since the IBM PC was introduced in 1981.” Certainly in the field of e‐commerce—the use of computer networks to directly or indirectly facilitate the exchange of goods, services and/or information—Gates’ vision has proved entirely correct. Measured by gross merchandise volume on its platform, Amazon has arguably emerged as one of the world’s largest retailers, online or off. In part, this derives from the product breadth and superior search capabilities it offers. A consumer visiting Amazon can quickly identify an array of offerings and sort them according to a variety of criteria ranging from price to product or merchant reviews. Pre‐Internet, such information gathering would require formidable effort if done offline. Uber, a ride‐sharing service, has drastically altered the way people get around major cities. Review sites like Yelp can now make or break the reputations of small and large businesses alike.

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General Introduction

Information Economics

2014 Information economics can be viewed as the study of economic issues in settings where uncertainty or asymmetric knowledge of prevailing conditions plays a central role. Such study underlies many inquiries in a vast array of fields. It is perhaps not surprising, then, that a search on Google Scholar for “information economics” returns more than 2.5 million results and over 28,000 exact matches...

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Pricing on the Internet

The New Palgrave Dictionary of Economics Online

2013 While many conjectured that the information-rich and frictionless nature of online markets would result in marginal cost pricing, this has proved not to be the case. Price dispersion online is ubiquitous. The main reason is that price discovery occurs through platforms that have an incentive to ensure that prices are dispersed so that information is valuable. We survey models of platform pricing and trace the impact of their decisions downstream to e-retailers. Finally, we highlight the connection between empirical findings and theory predictions for e-retail pricing.

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The Evolution of Product Search

Journal of Law, Economics & Policy

2013 This paper examines the evolution of product search. We provide an overview of product search in the pre-internet era and discuss how online search evolved from directory-based search in the early 1990s to “vertical” search engines by the late 1990s. We also document the prominence of price comparison sites in the mid-2000s and the challenges these platforms faced through 2010. We then use comScore qSearch data to closely examine trends in product search between 2010 and 2012. We find that today, the vast majority of shoppers conduct product searches at retailer sites and other marketplaces, whereas traditional price comparison sites have become less important

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Identification and Estimation of Online Price Competition with an Unknown Number of Firms

Journal of Applied Econometrics

2012 This paper considers identification and estimation of a general model for online price competition. We show that when the number of competing firms is unknown the underlying parameters of the model can still be identified and estimated employing recently developed results on measurement errors. We illustrate our methodology usingUK data for personal digital assistants and employ the estimates to simulate competitive effects. Our results reveal that heightened competition has differential effects on the prices paid by different consumer segments.

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Contests with Rank-Order Spillovers

Economic Theory

2012 This paper presents a unified framework for characterizing symmetric equilibrium in simultaneous move, two-player, rank-order contests with complete information, in which each player’s strategy generates direct or indirect affine “spillover” effects that depend on the rank-order of her decision variable. These effects arise in natural interpretations of a number of important economic environments, as well as in classic contests adapted to recent experimental and behavioral models where individuals exhibit inequality aversion or regret. We provide the closed-form solution for the symmetric Nash equilibria of this class of games, and show how it can be used to directly solve for equilibrium behavior in auctions, pricing games, tournaments, R&D races, models of litigation, and a host of other contests.

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