Thursday, May 26, 2016

The Aggregate Impact of Online Retail

Internet can be considered the largest technological innovation of the past two decades and it has had  profound effect on the retail sector with online retailers growing at an average rate of 17.5 percent per year as of 2000 according to Allen Tran of the Economics Department of the University of California in Los Angeles. This is compared to the entire retail sectors growth of 3.3 percent.

To asses the impact of online retail on both retailers and consumers, Tran calculated a spatial equilibrium model of retail with a geography based on the U.S. retail industry. A spatial equilibrium model can be defined as model can be determined on the basis of given regional supply and demand function. In this case, Tran used zip code level demographic data from the US Census of Retail Trade, demographic data from the Current Population Survey and Economic Census years 1997, 2002, and 2007. 

It was concluded that there is a strong position association between internet accessibility and the submergence of online utility from purchasing online like shipping eliminating the need to travel to stores in return improving productivity of courier companies like FedEx and UPS.

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