Impact of the Internet : Economic implications of e-commerce

OVERVIEW

Business and economy are inextricably linked with the development and implementation of new technology. While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth and development.

The information revolution aided by the revolution in the telecommunications and institutional innovations had initially promised to change the nature of the market altogether. Today market is a place where there is no intermediaries between a seller of a good and its final buyer to the mutual benefit of both parties (Sengupta, 2004). The Internet and its enabled technologies (especially electronic commerce) have caused the costs of many kinds of market mterachon to plummet (Saloner, 2001). Not only cost reduction, e-commerce has the potential to stimulate growth and employment in industrialized as well as developing countries. Further, e-commerce allows economics agents (both buyers and sellers) to interact more effectively by creating new market opportunities (Mukhopadhyay, 2002). Thus, e-commerce has strong economic implications at both micro and macro level.

E-COMMERCE AND ECONOMIC GROWTH

While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth, and productive growth (2) in particular. The US, which leads the world in IT and e-commerce, has had a notable economic performance, particularly in terms of productive growth, since 1995. But, the same was not happened with the developing countries as they failed to catch up technologically with the industrialized world.

IMPACT OF E-COMMERCE ON ECONOMY

Business and the economy are inextricably linked with the development and implementation of new technology (Tassabehji, 2003). Growth and development of any modern economy has been recognized by many economic theorists, such as Kondratieff, Schumpeter, Mensch and Porter, to be based on innovation of new technology. Mensch stressed that only technological innovations can overcome depression and that government must implement an aggressive innovation policy to stimulate the search for new and basic innovation. Further, Porter (1990), emphasizes that the prosperity and competitive advantage of a nation is no longer as a result of a nation's natural resources and its labour force, but rather the ability of its industry to innovate and upgrade. This can be seen as a disruptive technology on a macro environmental level. Continuous growth of e-commerce is expected to have deep impact on structure and functioning of economies at various levels and overall impact on macro-economy.

IMPACT ON COST, PRICE AND COMPETITION

The e-commerce lowers costs because the Internet lowers selling search costs as well as, by allowing seller to communicate product information cost effectively to potential buyers, and by offering sellers new ways to reach buyers through the targeted advertisement and one-on-one advertising. Thus it is helpful in reducing the search costs on both the sides. By reducing search costs on both sides of the market, it appears likely that buyers will be able to consider more product offering and will identify and purchase products that better match their needs, with a resulting increase in economic efficiency.

But the reduction in the cost combined with new capabilities of technology can set off more complex market dynamics (Bakos, 2001).E-Commerce technologies have the potential to significantly increase competition by increasing consumers' choice of products and traders (ACCC, 2001). However, some of the distinguishing characteristics of the e-commerce set up also have the potential for creating the monopoly power in the certain lines of products.

CONCLUSION

The emergence and rapid growth of Internet and E-Commerce has strong implications on economic and social activities. It is quite possible that these new technologies might transform the future of economic and societal landscape.

At the general level, there are two types of potential economic gains from the use of E-commerce and IT enabled technologies. First, are the gains in efficiency, both in static and dynamic. Static gains are one-time, and come from more efficient use of scarce resources, allowing higher consumption in the present. Dynamics gains come from higher growth, potentially raising the entire future stream of consumption and population. Efficiency gains of e-commerce also come about through the enabling of new digitized goods and services. The second type of potential benefits comes from cost reduction.

As e-commerce transcendens the barriers of geographical boundaries, the concept like the place of transactions and place of consumption become immaterial. With the emergence and growth of digital money in the economy, the chances of frauds have also increased. Another most difficult issue is the planning regarding the adoption and implementation of e-commerce technology in the various economic activities. In nutshell, with the e-commerce based economic models, there is little to lose and more to gain.

Source:

"Economic Implication of e-Commerce"

Indian Journal of Economics and Business, Dec, 2007 by Sumanjeet: http://findarticles.com/