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The Digital Revolution and COVID-19

Author

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  • Paolo E. Giordani

    (Dept. of Economics and Finance, LUISS University)

  • Francesco Rullani

    (Dept. of Management, Università Ca' Foscari Venice)

Abstract

We develop a simple model of digital markets to analyze the impact of Covid-19 on the digital transformation of sectors. The lockdown due to Covid-19 is modeled as a shock that wipes out the physical market, temporarily leaving digital consumption as the only option. Under plausible assumptions on digital demand and supply, the model predicts that such temporary shock produces an irreversible rise of the digital markets. This happens for three distinct reasons. First, by temporarily eliminating the physical market, Covid-19 provides a strong incentive for firms to carry out the fixed investments necessary to venture into the digital market (supply channel). Secondly, by forcing even the most reluctant consumers into the digital market, Covid-19 pushes them to familiarize with digital platforms, and this confidence endures in the post-Covid era (demand channel). Finally, if consumers' taste for digitalization is affected by the size of the digital market, a market may be entrapped into a low-digital equilibrium indefinitely. In such context, the lockdown due to the pandemic is the shock that may unleash the forces of digitalization and tilt the entire sector towards a high-digital equilibrium (network externalities channel).

Suggested Citation

  • Paolo E. Giordani & Francesco Rullani, 2020. "The Digital Revolution and COVID-19," Working Papers 06, Department of Management, Università Ca' Foscari Venezia.
    • Handle: RePEc:vnm:wpdman:176
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    References listed on IDEAS

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    Cited by:

    1. Chun Song & Lionel J. Beaulieu & Indraneel Kumar & Roberto Gallardo, 2023. "COVID-19-Induced Automation: An Exploratory Study of Critical Occupations," Economic Development Quarterly, , vol. 37(2), pages 183-197, May.

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    More about this item

    Keywords

    digital transformation; digitalization; Covid-19; pandemic; disruptive technologies;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L8 - Industrial Organization - - Industry Studies: Services
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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