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 document 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 offerings that exhibit less elastic demand. Accounting for the niche nature of new products generates welfare gains 40 times larger than those from lower prices and 30% higher than existing estimates that do not distinguish between mass and niche products. We also examine the geographic variation in these gains and find that consumers in rural and low-income regions enjoy greater benefits from increased variety. The findings emphasize that expanding niche product offerings may outperform price reductions in generating consumer benefits. Policymakers are encouraged to support e-commerce development in underserved regions to harness the inclusive growth enabled by digital platforms.