PRICE, QUALITY, AND SERVICE ON THE INTERNET: SENSE AND NONSENSE

Abstract

Faster, frictionless, cheaper, better: these are said to be the hallmarks of economic activity on the Internet. Search theory suggests use of the Net could reduce the prices consumers pay, but product branding, price discrimination based on data mining, and auctions may raise prices. The Net has lowered most prices, but raised others, even when shop bots are used. Price dispersion is greater on the Net, and Net sellers change their prices more often. The role of intermediaries has not been reduced. The quality of service is idiosyncratic and highly variable. The Net is a new and distinctive avenue of commerce, but those who argue it has invalidated conventional economic principles are well off base.