Search and Information Frictions on Global E-Commerce Platforms: Evidence from AliExpress
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. However, the lack of market selection can lead to a large number of online firms competing for consumers’ attention, resulting in severe congestion in consumers’ search process. When firms’ intrinsic quality is not perfectly observed, these search frictions can further slow down the resolution of the information problem and hinder market allocation towards better firms. In this paper, we investigate how search and information frictions shape firm dynamics and market evolution in global e-commerce. Using detailed data from AliEpxress as well as a rich set of self-collected objective quality measures, we provide stylized facts that are consistent with the presence of search and information frictions. Moreover, using a randomized experiment that offers exogenous demand and information shocks to small prospective exporters, we establish that firms with larger past sales have an advantage in overcoming the search friction and generating future orders. This indicates that initial demand shocks could confound firms’ true quality in determining firm growth and the long-run market structure. We construct and estimate an empirical model of the online market that are consistent with our descriptive and experimental findings and use the model to quantify the extent of demand-side frictions. Counterfactual analyses show that alleviating information frictions and reducing the number of firms can help to improve allocative efficiency and raise consumer welfare.
We thank Chang-tai Hsieh, Costas Akolakis, David Atkin, Lauren Bergquist, Ben Faber, Gordon Hanson, Asim Khwaja, Pete Klenow, Meredith Startz, Tianshu Sun, and seminar and conference participants at the Berkeley Economics, BREAD/CEPR/STICERD/TCD, Uni-versity of Chicago, Conference, Harvard Kennedy School, IPA SME Working Group Meeting, Michigan Economics, and USC for helpful comments. We thank Chengdai Huang, Haoran Zhang, and Qiang Zheng for excellent research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.