This thesis paper investigates theoretically and empirically on service economy, with special emphasis on e-commerce. Chapter two theoretically analyzes structural change from manufacturing to service sector and middle income trap in the context of technology diffusion in the two sectors and international trade between two large countries in different development stage. The rest of the dissertation studies a specific service technological progress, the introduction of e-commerce, and emphasizes on small firms instead of above-scale firms as in the literature. Chapter three uses census data to give a general description of the differences between e-commerce firms and their peers in geographical and industry distribution, ownership, scale, profitability, solvency, operating capacity, tax rate, and business diversification. On contrast, chapter four treats e-commerce as a substitute of traditional physical retail stores, and emphasizes on the competition between the two. It quantifies the effect of the competition as well as the scale effect of e-commerce on their entry decisions, and studies the potential impact of economic development and industrial policies.