October 3, 2017

The effect of geographical distance on online transactions: Evidence from the Netherlands

The rise of online trade alters the role of distance between (potential) buyers and sellers. We use data from eBay subsidiary Marktplaats.nl, one of the largest online trading platforms in the Netherlands, to estimate how distance affects the probability of a transaction between small geographical regions.

We find that distance negatively and modestly affects the probability of having a transaction between two regions, and that the distribution of this probability is highly skewed: ranging from a change of 0.000 to -0.008 percentage points per marginal kilometer. The unconditional probability of a transaction is 27 percent. Distance is less influential for:

  1. advertisements with more photos
  2. advertisements placed by high-frequency advertisers
  3. for new goods in comparison to second hand goods.

This suggests that information frictions might be the driving force behind the distance effect on online trade in the Netherlands.


Ali Palali
Bas Straathof