Why The Internet Creates Higher Prices

from the automated-collusion dept

An interesting study about how the internet has created a form of de facto collusion among internet retailers so that prices aren’t as low as they used to be. Since it’s so easy to track your competitor’s pricing on everything, and since any competitor will automatically mimic any pricing change, etailers have realized that it makes no sense to compete on price – and thus, they can charge a higher price, because everyone else will do so too. This makes sense at some level, but it strikes me as an inherently unstable situation, that’s just waiting for a company to come in and break up the party. All they need to do is figure out a way to offer the same goods with a lower cost structure, and then they can cut prices and kill the other companies’ margins.

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Comments on “Why The Internet Creates Higher Prices”

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1 Comment
Anonymous Coward says:

Garage sale bargains gone too

Used to be you could pick up something like a used Dreamcast for a song at a garage sale because the potential customer pool was so low. Now, with the likes of eBay, the least little widget goes for market price or higher because the customer pool is so large.
This effect in reverse will also ultimately kill off the niche store. If you are the only comic book store in town, you can charge a convenience premium. But when it is just as convenient to buy from a store in Australia as it is to buy in East Whatever, Idaho, you can’t do that anymore. When niche products become commodity products, the niche stores all go out of business. See ya later Ma & Pa Shopkeeper, hello Wal-Mart Komix.

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