There Goes Gravity: How Ebay Reduces Trade Costs

41 Pages Posted: 20 Apr 2016

See all articles by Andreas Lendle

Andreas Lendle

Graduate Institute of International and Development Studies (IHEID)

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Simon Schropp

University of St. Gallen; Sidley Austin LLP

Pierre-Louis Vezina

King's College London

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2012

Abstract

This paper compares the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows. It considers the same set of 62 countries and the same basket of goods for both types of transactions, and finds the effect of distance to be on average 65 percent smaller on the eBay online platform than offline. Using interaction variables, this difference is explained by a reduction of information and trust frictions enabled through online technology. The analysis estimates the welfare gains from a reduction in offline frictions to the level prevailing online at 29 percent on average. Remote countries that are little known, with weak institutions, high levels of income inequality, inefficient ports, and little internet penetration benefit the most, as online markets help overcome government and offline market failures.

Keywords: Economic Theory & Research, Common Carriers Industry, Free Trade, E-Business, Trade Law

Suggested Citation

Lendle, Andreas and Olarreaga, Marcelo and Schropp, Simon and Vezina, Pierre-Louis, There Goes Gravity: How Ebay Reduces Trade Costs (October 1, 2012). World Bank Policy Research Working Paper No. 6253. Available at SSRN: https://ssrn.com/abstract=2167187

Andreas Lendle (Contact Author)

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Marcelo Olarreaga

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Simon Schropp

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Sidley Austin LLP ( email )

Washington, DC
United States

Pierre-Louis Vezina

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

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