Emergence of Electronic Markets: Implication of Declining Transport Costs on Firm Profits and Consumer Surplus
AbstractElectronic coordination may drastically reduce transport costs, especially for digital or digitalizable products where local markets may actually shrink to a point in space. In the present paper we use a model with differentiated products to analyze the impact of declining transport costs on profits and consumer surplus. While consumers always gain, the effect on producers depends on the degree of product differentiation and the magnitude of transport costs in the electronic market mode. Profits do only rise if products are substantially differentiated – in this case the positive effect of an extended consumer base due to the preference for product differentiation dominates the negative effect of intensified competition. This result is amplified if transport costs in the electronic market mode are substantial. In this case profits only increase if products are almost independent.
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Bibliographic InfoPaper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number 196.
Date of creation: Jul 2000
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-01-27 (All new papers)
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