The Effect of Electronic Commerce on Market Integration and Spatial

Markets that are well-integrated spatially are important to the stability and success of the economy because they balance supply and demand and create incentives for innovation. Electronic commerce has the potential to improve market integration by providing visibility into supply/demand conditions in different geographic regions and facilitating trade across geographic distance. We study the effect of electronic commerce on market integration as measured by the prevalence of spatial arbitrage, which has several advantages over the price-based measures used in prior research. We also study the effect of two distinct forms of electronic commerce, which helps us better identify the linkages between electronic commerce, spatial arbitrage, and market integration. Based on an analysis of transactions in the wholesale used vehicle industry from 2003 to 2010, we conclude that electronic commerce improved