We investigate how market congestion and information friction affect firm dynamics and market efficiency in global e-commerce. Observational data and self-collected quality measures from AliExpress suggest significant demand frictions and potential misallocation in the online market. A randomized experiment that offers new exporters exogenous demand and information shocks demonstrates the limited ability of existing platform mechanisms to help small sellers overcome the demand frictions. We show theoretically and quantitatively that having a large number of market participants undermines the functioning of existing online mechanisms and hinders the discovery of high-quality sellers. Policy counterfactuals highlight that blanket-wide onboarding initiatives can aggravate market congestion, slow down the resolution of the information problem, and result in market misallocation.
Joint with Maggie X. Chen, Jin Liu, Xiaosheng Mu, Daniel Yi Xu