Will the internet reduce prices?

Will the internet reduce prices?


“The increase in accessibility to high-speed connections and the growth of broadband has made online shopping a more pleasant experience than ever before. Online shopping is open 24 hours a day, without the effort of travelling to a mall and dealing with the hassles of crowded stores with overworked staff.”
[Valerie Merahn, 2004]

I feel that the major impact of ecommerce has been in promoting consumer awareness. The marginal cost of obtaining product information has been slashed. This enables those with a desire to be informed access to masses of information in order to elevate their bargaining power and make much more educated decisions. The web has facilitated far greater disclosure of a product’s entire range of attributes allowing comparisons between products and outlets to be conducted effortlessly. Thus, distributors must perform the same function ensuring that they remain competitive in the markets place. In the main consumers are becoming ever more sophisticated and will vote with their feet where prices step out of line.

Designated websites have established themselves to further ease the consumers’ task, namely; Froogle.com, BizRate.com, mySimon.com, NexTag.com, PriceGrabber.com, Price SCAN.com and Shopper.com. Here the interrogation process is completely outsourced. Once the results return they can be sorted in ascending order of price, presumably with the most attractive option appearing at the head of the queue. This system proves most effective where the object of desired is homogeneous, i.e. price is the only feature that differentiates the prevailing competitors.

Empirical evidence has uncovered that “as price becomes easier to search in comparison to other search attributes, customers may base their choices predominantly on prices”.
[Pingjun Jiang, 2002]

The underlying concept driving the observations above is “IT parity” where modern technology has diminished the information gap between the customer and supplier. Both parties have access to the same resources. Correspondingly, this reduces the consumers’ dependency on the outlet as they can gain broader and more independent knowledge equivalent to that of the in house sales expert to form their conclusions.

Recently I discovered a new artist, overwhelmed with excitement I had to have the album. Below is a list of options and constraints in order to satisfy my craving;


Source Cost Conditions

HMV store £10.00 -

HMV - online £5.99 3-5 day wait, Impulsive and wanted it now!

Illegal Download - Morality issues


The price divergence offered by the same company is plain to see, how do the offline counterparts justify this discrepancy? There are issues with the logistics of purchasing online. How did I value having to wait almost a week to satisfy my craving, incurring the risk that it may be lost in the post and then having to haggle with their customer services department to possibly get another copy sent out only to wait yet another week? Only for it to arrive when I am not in and thus have to walk approx 1 mile to the post office, probably in the rain! In response, I opted for the security of traditional methods this is the comparative advantage physical shops hold and must retain.


Downloading or effectively stealing the album throws up interesting issues regarding the effect of the World Wide Web on the price certain goods. Without the internet, this option would not be possible. Intuitively you may perceive this may have detrimental to record sales, however the opposite is proclaimed true, where “due to sampling: consumers are willing to pay more because the match between product characteristics and buyers' tastes is improved.”

[Jyh – Shen Chiou, Chien – yi Huang, Hsin – hui Lee, 2005]


The internet as a retail base has produced contrasting results, whilst driving the price of online goods through ease of research; it has allowed the offline price to rise in some markets pairing the customer’s desire more closely with the specific product. Therefore evidence confirming the essay question is inconclusive. The online market for many good is extremely competitive with many firms operating precariously close to the margins. Can this continue, not for sustained periods at least. Therefore, internet prices will fall inline with the cost of manufacture.





Bibliography;



• The Antecedents of Music Piracy Attitudes and Intentions; Jyh – Shen Chiou, Chien – yi Huang, Hsin – hui Lee, Journal of Business Ethics, 2005

• Priced to Go: A Quick Search for Soda, Valerie Merahn. Brandweek, 2004

• A model of price search behavior in electronic marketplace, Pingjun Jiang. Internet Research, 2002

• The impact of shopbots on electronic markets, Michael D Smith. Academy of Marketing Science. Journal, 2002

• What’s price got to do with it?, Carl Steidmann, Progressive Grocer, 2006