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| Distribution Digitization and Creative Destruction |
| Wang Miaojun |
| School of Economics, Zhejiang University, Hangzhou 310058, China |
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Abstract Based on the research on technological innovation and firms’ dynamics by Klette and Kortum (2004), among others, we investigate the driving forces for the digital transformation and its effects on the creative destruction from the digital transformation of the sales channels. Specifically, we believe that technological innovation depends not only on R&D activities, but also on marketing activities and sales channels. Compared with offline channel, online channel has some disadvantages in product quality due to some technical reasons, but online channel also has the advantage of saving the distribution cost.With the development of digital technology, the product quality disadvantage diminishes, which causes more firms to choose online channel. With the increase in offline distribution cost, the cost-saving advantage is strengthened, which push more firms to choose online channel. To sum up, two driving forces push firms to transform from offline channel to online channel, but the consequences of these two different digital transformations may be completely different.With the development of digital technology, the marginal revenue of online firms’ innovation increases, and the R&D investment and the speed of the creative destruction in the entire industry also increase. This is the direct effect of digital technology change. With the development of digital technology, the relative market value of online channel firms also increases. More firms will choose online channel, which affects the speed of the creative destruction. This is the indirect effect of digital technology change. When the cost-saving advantage of online channel exceeds its product quality disadvantage, the average innovation speed of online firms is higher than that of offline firms. Then, more firms transform from offline to online channel to speed up the industry innovation, and the development of digital technology also indirectly helps the industry innovation. Therefore, digital transformation induced by digital technology eventually increases the speed of the creative destruction in the industry in this case.Similarly, the effects of changes in the offline distribution cost on the creative destruction can be divided into direct and indirect effects. When the quality disadvantage of online channel exceeds its cost-saving advantage, the average innovation speed of online firms is lower than that of offline firms. The increase in the offline distribution cost indirectly decreases the industry’s R&D investment and innovation speed. Then, the digital transformation induced by the distribution cost eventually decreases the speed of the creative destruction in this case.Changes in digital technology and distribution cost also affect the quality of the creative destruction in the industry. Under some circumstances, the development of digital technology also improves the quality of the technological innovation, while the increase in distribution cost always lowers the quality of innovation. Therefore, the digital transformation induced by digital technology may promote economic growth due to its positive effects on the creative destruction. However, the digital transformation induced by distribution cost is likely to hinder economic growth due to its negative effects on the creative destruction.
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Received: 08 July 2022
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2022, Vol. 52 
