Introduction

The widespread use of the Internet and the associated emergence of e-commerce have significantly changed our lives and are going to have an increasing impact on the world economy. With the increase of internet use and e-commerce, informational and transaction costs are reduced dramatically. As with any network (such as the telephone system), the greater the number of people using the Internet, the more useful it is to its users. Thus, with the expected explosion in the number of users in the near future, the benefits of internet use and e-commerce will increase dramatically. Just as in e-commerce, in the division of labour in the economy, transaction costs and networking effects also play important roles. On the one hand, the division of labour allows each individual to specialize more, tapping the economies of specialization. A larger network of division of labour allows more of such economies to be enjoyed. On the other hand, specialization necessitates more trade, which involves transaction costs. In fact, the optimal tradeoff between the economies of specialization through the network of division of labour and the transaction costs of the required exchanges is a central aspect of the Yang-Ng framework of inframarginal analysis (on which more below) of the network of division of labour and the associated economic organization and its evolution. As both e-commerce and economic organization are closely associated with transaction costs and networking effects, it is natural that both may be amenable to the same framework of analysis.