Search costs are lower in digital environments, enlarging the potential scope and quality of search. Digital goods can be replicated at zero cost, meaning they are often non-rival. The role of geographic distance changes as the cost of transportation for digital goods and information is approximately zero. Digital technologies make it easy to track any one individual’s behavior. Last, digital verification can make it easier to verify the reputation and trustworthiness of any one individual, firm, or organization in the digital economy. Each of these cost changes draws on a different set of well-established economic models: Primarily search models, non-rival goods models, transportation cost models, price discrimination models, and reputation models.
From a review paper by Avi Goldfarb and Catherine Tucker, which discusses the empirical findings for each of the points above.