At the most abstract level, the Internet can be conceptualized as a giant machine for reducing transaction costs. As we have seen the Internet is being used in a myriad of ways to speed, simplify, and enhance relations between consumers and firms. The Internet reduces physical and bureaucratic drag by drastically reducing the importance of location and the number of procedural steps requiring the direct intervention of firm operatives. For example, on the retail side the external costs associated with opening, maintaining, and staffing actual physical stores is reduced, and on the production/distribution side the time-related costs of generating and circulating paper is reduced. Startup costs are also greatly reduced in that all anyone really needs to begin selling things over the Internet is a connected server, or space on someone else’s server. This has led to a proliferation of individuals and firms attempting to use the Web for commercial purposes.
The ease with which someone can have a presence on the Internet, or access the Internet, has led to a disturbing paradox. The Internet replaces physical space with a virtual space within which all places are essentially the same. There are no permanently situated, highly traveled intersections or malls with thousands of potential customers constantly passing by, costs associated with traveling across town to find a particular product or service, high real estate costs, and parking lots to build. To the customer the Web is a million places, all in the same place. To the merchant, it is a cacophony within which being noticed is increasingly difficult. While it is supremely easy to set up a web site, whether anyone actually visits it is another question altogether. Thus it is likely that the number of small merchants using the web to market specialized goods and services will continue to reproduce, and that this reproduction will lead to many successes, but even more failures. Yet it is also equally plausible to assume that a small number of firms, either new first movers, or already established brand names, will dominate their respective product markets at a minimum nationally and likely globally.
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Amazon.com. 1998. “Amazon.com Acquires Three Leading Internet Companies.” (August 13) http://www.amazon.com).
Caginalp, Elizabeth. 1998. “The Internet Economy.” Computer Reseller News (April 27)
David, Paul. 1986. “Understanding the Economics of QWERTY: The Necessity of History.” In W. Parker (ed.) Economic History and the Modern Economist (New York: Basil Blackwell).
M. Kenney and J. Curry. 1999 “Knowledge Creation and Temporality in the Information Economy.” Intfotrac (Tom and Ada Beam Library)