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A digital economy is an economy that is based on electronic goods and services produced by an electronic business and traded through electronic commerce. That is, a business with electronic production and management processes and that interacts with its partners and customers and conducts transactions through Internet and Web technologies.

The concept of a digital economy emerged in the last decade of the 20th century. Nicholas Negroponte (1995) used a metaphor of shifting from processing atoms to processing bits. He discussed the disadvantages of the former (e.g., mass, materials, transport) and advantages of the latter (e.g., weightlessness, virtual, instant global movement). Rayport and Sviokls (1995) pointed out that digital assets are not consumed through use and that the potential for reuse through an infinite number of transactions changes the competitive dynamics of the marketplace.

Don Tapscott (1996) was, perhaps the first to coin the phrase "digital economy." He noted that in a digital economy, competition comes from all directions and business that fail to adapt risk their survival. Old social norms, laws, regulations, institutions, and customs are both inadequate and inappropriate. As information shifts from analog to digital, physical things become virtual which, in turn, alters institutional relationships and the nature of economic activity.

Jeremy Rifkin (2000) suggests that in the new era, markets are giving way to networks, that ownership is being replaced by access, and that businesses are coming together in deep webs of mutually interdependent relationships.

From an institutional perspective, Holmes (2001) states that governments are beginning to consider whether or not to levy cybertaxes to stop the loss of revenue from digital commerce. Sparr (2001) points out that empires built of fiber and air challenge governments and their territorial authority through technology.

• Holmes, Douglas. 2001. E-Gov. Nicholas Brealey. p223
• Negroponte, Nicholas. 1995. Being Digital. Vintage Books. intro.
• Rayport, Jeffrey F. and John J. Sviokla. 1995. "Exploiting the Virtual Value Chain", in: Harvard Business Review, Nov.
• Rifkin, Jeremy. 2000. The Age of Access. Penguin Putnam. p 4, 19
• Sparr, Debora L. 2001. Ruling the Waves. Harcourt. p3
• Tapscott, Don. 1996. The Digital Economy. Mcgraw-Hill.

• Digital Economy
• Electronic business
• Electronic Commerce
• Information economy
• Information Society
• Knowledge Economy
• Knowledge management
• Knowledge market
• Network Economy
• Virtual economy