When and How Is the Internet Likely to Decrease Price Competition?
Coauthor(s): R. Lal.
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Marketers all over the world agree that the Internet
will have a major impact on the way firms do business.
What changes will exactly occur, however, is hard to
predict as the Internet is in a phase of rapid growth
and constant change. Patterns are difficult to isolate,
especially since despite its explosive growth, today, the
Net is still in its infancy, only being available to a small
proportion of people. In spite of this general lack of
reliable patterns, one consensus among managers
seems to be that the Internet is likely to intensify price
competition. In essence, the conventional wisdom seems to be
that the Internet lowers the cost of distribution and the
cost of consumer search, thereby lowering barriers to
entry, and thus "creating the closest thing yet to Adam
Smith's perfect competition." Under what conditions can firms raise prices and increase
profits by using the Internet as a complementary
channel of distribution, despite its lower costs of distribution
and search? Furthermore, should the Internet
ever be used if the cost of distribution is higher?
Source: Marketing Science
Lal, R., and Miklos Sarvary. "When and How Is the Internet Likely to Decrease Price Competition?" Marketing Science 18, no. 4 (April 1999): 485-503.