Introduction

There is a considerable amount of literature in management science, which claims that the digital economy is a frictionless economy, where hierarchies and institutions disappear replaced by dynamic and self-organized webs of companies and consumers, freely meeting on this new web of opportunities (Bakos, 1997; Hagel, 1999; Hagel & Singer, 1999; Evans & Wurster, 2000).

The implications of this vision, that we call the paradigm of the frictionless Internet economy and society, are huge. It may influence the way managers build market strategies and manage organizations, but also the way policymakers address relevant issues concerned with the so-called digital divide in the knowledge society (Norris, 2000; Compaine, 2001).

This idea is not new. As Agre (2001) reminds us, conservative legal scholars, back in the seventies, viewed social progress, teleologically, as the progressive reduction of transaction costs, and thus argued the perfect approximation of ideal markets. However, Rullani (1998) warns against this fundamentalist approach to Internet society, because it simply reintroduces the ideology of the invisible hand of the market and social darwinism against any idea of collective action.

In previous works (Mandelli, 2001b) and in this study, we have addressed the frictionless vision. This vision challenges the communication symmetry fallacy, on which is based the idea that the network economy is automatically eliminating the information and institutional hierarchies, though we also believe that the Internet introduces radical changes in the way economic institutions are built and the way businesses are conducted. However, we claim that the complexity of our interconnected world, the evolutionary nature of trust and learning dynamics, and the economics of mediation referring to the economics of relationships plus the economics of information infrastructure, play a major role in both the creation and reduction of these new hierarchies in digital society. The result is complex and not deterministically driven by network technology.

We challenge the frictionless paradigm, providing primary and secondary research support for the idea that in the digital society and digital economy there still are cognitive frictions and hierarchies. There is evidence about price dispersion and the role of hierarchical brands in the digital economy. Moreover, there is evidence about the failure of business models based on the frictionless assumptions, data about economic concentration in the Internet industries and infomediation flows, and evidence about social frictions and new social transaction costs in building new relationships on digital webs.

Research from different disciplines has already addressed this issue. We try to include these different empirical works in a unitary, interdisciplinary framework by using theories elaborated in social sciences, information sciences, management sciences and mass communication research. Furthermore, we provide theoretical explanations for this new idea of the impact of technological networks on society by looking for sources of hierarchies in the complexity of the new social systems, and in the economics of information and economics of cognitive and social mediation.

Trust in our study is not seen as an automatic driver of hierarchy reduction in digital society; its role is more complex, since it contributes to both the reduction of old hierarchies and the formation of new ones. We add original empirical evidence supporting the path-dependent idea of the dynamics of trust by using survey data on a random stratified sample of 288 Italian Internet users. Trust builds trust. Bonding social capital drives both new bonding, social ties and new bridging, out-of-the-community relationships. But social capital building requires not only the investment of prior social resources, it also asks for network social infrastructures, that is the diffusion of connectivity services, and for cognitive and time resources. The path-dependent nature of trust dynamics on digital networks is also suggested by the role of values in influencing communication behavior and attitudes.