A simple model of online marketing, production, profit and growth

Abstract

We build an optimization model to decipher the effects of digitalization in trading or marketing. The basic model uses Cobb -Douglas production function to argue that a shift from offline to online may induce increase in profit and subsequent economic growth. The factor-intensity of trading has a role in this context. Additionally, night time utilization due to digitalization further strengthens our results. The extended model with a CES production function gives similar results. However, revenue and cost implications are not same in these two cases. Nevertheless, the essence of the basic results holds true even in a more generalized case.

Keywords

• digitalisation
• selling
• output
• profit
• growth