“When I first started doing work on how the Internet is affecting commerce, like a lot of people, I was really excited by this nearly perfect market,” said Erik Brynjolfsson of the Sloan School of Management at Massachusetts Institute of Technology.
His early research found that prices on the Internet were 6 percent to 16 percent lower than prices off-line.
But when he thought about how people actually shop online, and what they find valuable, he realized that low prices are not the big story. Selection is. The Internet offers variety that is simply impossible in traditional stores.
Online shoppers are not just buying the same stuff for less money. They are buying different stuff. And they are much more likely to be getting exactly what they want than are off-line shoppers.
In effect, the emergence of online retailers places a specialty store and a personalized shopping assistant at every shopper’s desk,” write Professor Brynjolfsson, Yu Hu, and Michael D. Smith in a November 2003 article in Management Science. “This improves the welfare of these consumers by allowing them to locate and buy specialty products they otherwise would not have purchased due to high transaction costs or low product awareness.”
A copy of the paper is available here.