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Internet Essay

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In the past economists have paid most attention to the effects of the internet on prices. These fit snugly into a standard economic model of competition. The internet acts mainly as a mechanism that reduces consumers' costs of acquiring information about products and prices. Before the online age, someone looking to buy a fridge, say, might have gone into one or two local shops, and perhaps rung a few more, to compare prices. The web, however, made it easy to gather more information. Theory suggested that as more and more retailers and customers went online, customers would become pickier. It would become more difficult for a retailer to continue to sell overpriced goods because people would have more knowledge about other options. E-commerce ought therefore to lead to intensified price competition and through it to lower variation, or “dispersion”, in prices. A large scholarly literature has found that this is true. For a rea...

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