The Digital Revolution and Covid-19

46 Pages Posted: 6 Nov 2020

See all articles by Paolo E. Giordani

Paolo E. Giordani

LUISS "Guido Carli" University

Francesco Rullani

Ca Foscari University of Venice, Bliss - Digital Impact Lab

Date Written: November 5, 2020

Abstract

We develop a simple model of digital markets to analyze the impact of Covid-19 on the digital transformation of sectors. The lockdown due to Covid-19 is modeled as a shock that wipes out the physical market, temporarily leaving digital consumption as the only option. Under plausible assumptions on digital demand and supply, the model predicts that such temporary shock produces an irreversible rise of the digital markets. This happens for three distinct reasons. First, by temporarily eliminating the physical market, Covid-19 provides a strong incentive for firms to carry out the fixed investments necessary to venture into the digital market (supply channel). Secondly, by forcing even the most reluctant consumers into the digital market, Covid-19 pushes them to familiarize with digital platforms, and this confidence endures in the post-Covid era (demand channel). Finally, if consumers' taste for digitalization is affected by the size of the digital market, a market may be entrapped into a low-digital equilibrium indefinitely. In such context, the lockdown due to the pandemic is the shock that may unleash the forces of digitalization and tilt the entire sector towards a high-digital equilibrium (network externalities channel).

Keywords: digital transformation, digitalization, Covid-19, pandemic, disruptive technologies

JEL Classification: O3, L8, D8

Suggested Citation

Giordani, Paolo E. and Rullani, Francesco, The Digital Revolution and Covid-19 (November 5, 2020). Department of Management, Università Ca' Foscari Venezia Working Paper No. 6, Available at SSRN: https://ssrn.com/abstract=3725851 or http://dx.doi.org/10.2139/ssrn.3725851

Paolo E. Giordani

LUISS "Guido Carli" University ( email )

Viale Romania 32
Roma, Roma 00197
Italy

Francesco Rullani (Contact Author)

Ca Foscari University of Venice, Bliss - Digital Impact Lab ( email )

San Giobbe, Cannaregio 873
Venice, VE 30121
Italy
+390412347428 (Phone)

HOME PAGE: http://www.francescorullani.com

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
105
Abstract Views
945
rank
343,651
PlumX Metrics