The Stability of Virtual Equilibrium

Tarek Selim (tarekhassanselim@gmail.com)

MPRA Paper from University Library of Munich, Germany

Abstract: The impact of information technology (IT) on the stability of market equilibrium is explained from a simple microeconomic standpoint. Attributes of a dynamically stable “virtual” market equilibrium are described assuming consumer rationality, an elastic supply curve, and minimum static market demand. Three conditions are necessary for long-run price stability of such a “virtual” equilibrium: (1) firm-specific strategic effects have to be completely offset by aggregate demand growth effects, (2) market equilibrium must arise under the constraint of demand sustainability, and (3) consumer indirect utility gains from information availability must exceed their respective disutility from locational search costs. Those conditions stem from more elastic supply together with less elastic demand compared to when IT is not utilized.

Keywords: information technology; virtual market; equilibrium stability; consumer rationality; elastic supply; strategic effects; growth effects (search for similar items in EconPapers)
JEL-codes: D8 D83 L21 L26 L86 M21 O31 (search for similar items in EconPapers)
Date: 2004-12
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:119501

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