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There goes gravity: how eBay reduces trade costs

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  • Lendle, Andreas
  • Olarreaga, Marcelo
  • Schropp, Simon
  • Vézina, Pierre-Louis

Abstract

We compare the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows. We consider the same set of 62 countries and the same basket of goods for both types of transactions. We find the effect of distance to be on average 65 percent smaller on the eBay online platform than offline. Using interaction variables, we show this difference is explained by a reduction of information and trust frictions enabled through online technology. We estimate the welfare gains from a reduction in offline frictions to the level prevailing online at 29 percent on average.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9094.

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Date of creation: Aug 2012
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Handle: RePEc:cpr:ceprdp:9094

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Keywords: eBay; Gravity; Online trade; Trade costs;

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  1. Maris Goldmanis & Ali Hortaçsu & Chad Syverson & �nsel Emre, 2010. "E-Commerce and the Market Structure of Retail Industries," Economic Journal, Royal Economic Society, vol. 120(545), pages 651-682, 06.
  2. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  3. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  4. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," FIW Working Paper series 095, FIW.
  5. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  6. redakce, 2012. "n/a," Ekonomika a Management, University of Economics, Prague, vol. 2012(1), pages 72-73.
  7. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  8. Berthelon, Matias & Freund, Caroline, 2004. "On the conservation of distance in international trade," Policy Research Working Paper Series 3293, The World Bank.
  9. Blum, Bernardo S. & Goldfarb, Avi, 2006. "Does the internet defy the law of gravity?," Journal of International Economics, Elsevier, vol. 70(2), pages 384-405, December.
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  1. Trade and Development at ETSG
    by Dany Jaimovich - Bakary Baludin in Development Therapy on 2012-09-17 16:57:00
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Cited by:
  1. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2012. "Language, Internet and Platform Competition: the case of Search Engine," TSE Working Papers 12-336, Toulouse School of Economics (TSE).

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