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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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Bibliographic Info

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. Berthelon, Matias & Freund, Caroline, 2004. "On the conservation of distance in international trade," Policy Research Working Paper Series 3293, The World Bank.
  2. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," FIW Working Paper series 095, FIW.
  3. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  4. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
  5. 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.
  6. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  7. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
  8. 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.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  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. Head, Keith & Mayer, Thierry, 2013. "What separates us? Sources of resistance to globalization," CEPR Discussion Papers 9614, C.E.P.R. Discussion Papers.
  2. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail M., 2012. "Language, Internet and Platform Competition: the case of Search Engine," CEPR Discussion Papers 9144, C.E.P.R. Discussion Papers.
  3. Bo Cowgill & Cosmina Dorobantu & Bertin Martens, 2013. "Does online trade live up to the promise of a borderless world? Evidence from the EU Digital Single Market," JRC-IPTS Working Papers on Digital Economy 2013-08, Institute of Prospective Technological Studies, Joint Research Centre.
  4. Lendle, Andreas & Olarrega, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2013. "eBay’s anatomy," Economics Letters, Elsevier, vol. 121(1), pages 115-120.

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