The Internet and the Economy

The internet is facilitating change in the economic operation of companies, markets and governments and impacting the lives of those at work and in the rest of their lives. This post looks at the internet and the economy and seeks to understand its impact in a range of areas. Precise measurement of the impact of the internet on the economy is difficult and open to argument. Cisco provide an overview of their interpretation of the economic impact of the Internet of Things (or, as they call it, The Internet of Everything):

Economics as a science covers a wide range of areas, from the behaviour of firms, to the operation of markets, to the economic policies and activities of national governments and international institutions. It covers trade between countries and approaches that might be adopted to a range of social issues, including unemployment, health, education and wealth. The following video provides an introduction to the field of economics:

More detail is available here in this expanded description of the field of economics:

Ronald Coase who died in September 2013 developed the economic theory of Transaction Costs. This theory argued that while free market competition was a good basis for the operation of modern economies, the costs of moving from one product or service to another created limitations on how efficient free markets could be. For example, the cost of moving from one supermarket to shop to another would include the time taken to travel from one to the other, the time to learn the layout and techniques needed for the new supermarket, the cost of moving from one loyalty programme to another, and Coase argued these needed to be taken into account in assessing how “free” markets were.


Coase’s theory, developed in the 1930s is now being applied to understand the impact of the internet on the economy. It is argued that the internet has made it easier for producers to procure inputs (raw materials) for their production processes and reduced production costs. They have been able to engage in better and less costly supply chain management and operate with significantly lower levels of inventory. Outsourcing has been made easier and we have seen many companies substantially increase the outsourcing of many activities, often to economies with much lower labour and other costs. Price discrimination (targeting marketing, products and prices to specific individuals) has been made much easier by the internet.

Consumers have experienced lower prices and this has increased demand for consumer goods, prices have become more transparent, and consumers do more information gathering before making a purchase due to the internet. Asymmetry of information in markets, where sellers know significantly more about the product and its market than buyers, has declined.

So, internet markets are argued to be more efficient due to the ease of information transmission, this leads to lower transaction costs. Different pricing and selling mechanisms, such as online auctions, also contribute to increased efficiency.

The economic importance of the internet and its value to national economies is highlighted in the next video from the Lisbon Council which discusses the internet enablement of European economies:

Data on the impact of the internet on the economy globally is produced by the OECD:

OECD Indicators

Canadian ,Don Tapscot has considered the role that governments should play in supporting the development of an economy that is capable of taking advantage of the internet:

The importance of the internet in the economy is highlighted in a range of areas today. In Seoul a recent conference focused on the internet economy in South Korea:

The Disruptive Competition Project considers whether the internet can change the economics and politics of international trade:

Disruptive Innovation

The enablement by the internet and impact of micro businesses are discussed in the next video by Chad Dickerson, the founder of Etsy:

Net neutrality is argued by many to be important to the internet economy and its free operation. Threats to net neutrality are argued to be threats to the positive economic contribution of the internet, as discussed in this PBS recording:

Net Neutrality

Various organisations exist that are researching and campaigning against the erosion of net neutrality from and economic prosperity point of view. These include the Hudson Institute in the US:


and the in Canada:


In the operation of the internet economy, the retail environment is argued to be likely to experience significant change and this will significantly alter the experience of consumers:

The internet may also have an impact in financial markets. Recently there has been discussion about Bitcoin, the largest of the new internet currencies. The following video describes what Bitcoin is:

In this video and extended consideration of the issues surrounding Bitcoin and its future takes place:

While many some people argue that the internet will have a positive impact on job creation, others argue that it will result in the loss of jobs and a negative impact on the lives of many people. This is discussed in the following video:

Others have argued that the internet may have an impact on the balance of global economic power, as highlighted in this discussion from Moscow on the internet economy and the BRIC countries (Brazil, Russia, India and China):

The internet economy’s impact on China is further explored here:

Beyond the BRIC nations, the internet economy’s impact in South Africa is explored and its importance is emphasised:

The economic impact of the internet is now being understood in a wide range of economic areas. At a local level, most districts and municipalities are seeking to understand what it means for them. This video explores the internet economy in Arkansas:

While the impact of the internet in the US prairies is considered here:

This post has looked at the impact of the internet on the global economy. The theory of this impact was explored first and the importance of the contribution of Ronald Coase outlined. The internet has been shown to impact international, national and local economies and the activities of companies and individuals as producers and consumers.



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