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Impact of the Internet on Business Landscapes

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The increase use of the internet has had significant impact upon the competitive structures of the United States economy, specifically upon smaller businesses. Studies indicate that the primary benefits of access to the internet for small businesses are the direct and indirect network effects, lower search costs and greater price dispersions.

Studies demonstrate that within the past years small independent businesses have made less of an appearance across many sectors of the economy, this is due to the power of large corporations that use their market dominance to exclude their rivals to compete. There are multiple reasons to encourage and bring back competitive markets because small businesses allow for more consumer benefits and provide a more equally distribution of income and increase job opportunity.

According to the research by McKinsey Global Institute, the internet has become the driving force behind GDP growth in developed economies over the past 5 years. It has accounted for a 21 percent increase in GDP. The internet is considered a two sided market by indirect and direct network effects. Smaller businesses thrive with indirect network effects because it encourages more buyers and sellers. The increase numbers of participant on one side of an enterprise leads to an increase on the other market side. Direct network effects are related to the size of media application. For example, studies demonstrate that telecommunication networks like Skype, Facebook and LinkedIn consumers utility depend on the presence of other users.

One industry that the increase access of the internet has affected is the news industry. The news industry is in competition with the greater presence of online news media. According to the study, 57 percent of newspaper readers now turn to digital sources for news channels. This study argues that media aggregation allows small news sites to gain more interaction because of the need for high quality news information from larger firms.

Search costs are defined as the the costs of looking for information. It is easier to discover and compare information through the internet. Lower search costs allow consumers to gather a range of prices for the specific product. This reduces price dispersion. The internet supports consumer spending by providing different retailers who produce a variety of products. Lower search cost support a more competitive structure because show that it is easier to find unique and rare products of the increase of firms presence on the internet.