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Prof. Marcelo Olarreaga

University of Geneva, Switzerland

Authors: Marcel Andreas Lendle, Marcelo Olarreaga, Simon Schropp, and Pierre-Louis Vézina

Abstract: We compare the impact of geographic distance, a standard measure of trade costs, on eBay and offline international trade flows. We consider the same set of 61 countries and the same basket of goods for both types of transactions. We find the effect of distance to be on average 65% smaller on the eBay online platform than offline. We argue this difference is explained by a reduction of search costs enabled through online technology. We estimate the welfare gains from a reduction in offline distance-related frictions to the level prevailing online at 4% on average.

Full Text:  “There Goes Gravity: How eBay Reduces Trade Costs”