Internet and the Efficiency of Decentralized Markets : Evidence from Automobiles

We estimate the effect of Internet on volume of trade in a major distributed marketplace. From 1997 to 2007, a period during which residential Internet use tripled, Internet increased the volume of used cars traded in California by 7.2 percent. This implies a substantial welfare gain due to reductions in market frictions. Additional gains may accrue when externalities are associated with the rate of vehicle fleet turnover (e.g. with respect to greenhouse gas emissions from fuel economy standards)