NBER, November 2020:
Author: Jie Bai, Maggie Chen, Jin Liu & Daniel Yi Xu
Global e-commerce platforms present new export opportunities for small and medium-sized enterprises in developing countries by significantly lowering the entry barriers of exporting. This column shows, however, that the lack of market selection can lead to severe congestion in consumers' search process and, when firms' intrinsic quality is not perfectly observed, hinder market allocation towards better firms. Policies aimed at alleviating information frictions and reducing the number of firms can help to improve allocative efficiency and raise consumer welfare.