Authorized Authorized

ACCELERATING GROWTH
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goods trading exclusively online, as for e-books,
online search, and streaming music and videos—
making transport, storage, and distribution obsolete.
Intensifying competition
Price comparator websites enhance transparency in
prices and result in lower and less dispersed prices for
consumers. Consider term-life insurance, where average
prices have fallen up to 15 percent in the United
States after the introduction of comparator sites. 41
These websites emerged in 1996 and eliminated the
previously high markups. The potential customer
fills out a medical questionnaire online, and the sites
report quotes from companies that offer a suitable
policy. In almost all cases, the individual does not buy
the product directly online but gets connected instead
to the offline seller. Comparator sites essentially provide
an information platform between the consumer
and the life insurance company that formerly was
available only to brokers. In contrast, the prices of
whole-life insurance, which were not covered by
these sites, were not affected—whole-life insurance
is a more complex product including built-in saving
components, leaving more room for asymmetric
information across buyers and sellers; a decline in
search costs is thus less relevant.
Online registration systems can lower the cost of
entry for new players, increasing competitive pressure
for incumbents. The number of newly registered
limited liability firms has increased, on average, 56
percent after the introduction of online registration
systems (from 2.7 per 1,000 working-age population
in years before the reform to 4.2 in the years after). 42
But this positive average impact masks heterogeneity
across countries (figure 1.10). Thirty-three countries
introduced online registration systems for firms
between 2006 and 2012. The entry density declined
somewhat in 8 of the 33 countries.
Two out of three firms experience moderate or
severe competition from digital innovations. The
share of firms reporting competitive pressure from
traditional competitors is somewhat higher than the
share of firms reporting competitive pressure from
digital technology startups (figure 1.11). Firms in traditional
sectors using digital technologies to modernize
their business are thus an important source of competition
(see also box 1.5). 43
Bringing competition to incumbent firms
The internet has created new types of startups that
base their business model entirely on the web but
offer traditional services such as retail trade, finance,
transport, logistics, tourism, media, publishing, and
advertising. These new business models dissolve the
Figure 1.10 Firm entry rates rose after
countries introduced online registration
systems, 2006–12
Average firm density
8
6
4
2
0
Before
reform
Sources: World Bank Doing Business database, 2007–12; World Bank Entrepreneurship
Database, 2006–12. Data at http://bit.do/WDR2016-Fig1_10.
Note: The entry densities are based on regression coefficients using the
reform years in the Doing Business database. The reform year is either
the year when the online business registration was introduced or when
significant digital measures were undertaken to make the online registry
more effective.
boundaries between the online and offline economies
and can help break existing regulatory barriers
to entry in sectors that are often protected from
competition.
Mobile money spurs competition in finance. Safaricom,
the leading telecom firm in Kenya, launched the
mobile money service M-Pesa in 2007, allowing users
to transfer money through a simple text-based menu
Figure 1.11 Two out of three firms report competitive
pressure from digital innovations, 2014
Established companies
that are using digital
technology to enter the
market(s) for the first time
Digital offerings from
traditional competitors
Startups driven by
digital technology
After
reform
Source: Economist 2015a. Data at http://bit.do/WDR2016-Fig1_11.
The data are based on a global survey with 561 respondents.
0
At 90th percentile,
difference = ~2
At 75th percentile,
difference = ~1
At median,
difference = ~0.1
10 20 30 40 50 60 70 80 90 100
Percent
Moderate-to-severe competitive pressure
Limited-to-no competitive pressure
Not available