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Jacob Passy, writing at MarketWatch, explains that the Internet is taking what was once difficult—finding the best price—and making it easy. Because e-retailers can’t have the physical advantages a location can generate, they are forced to compete on price. In economics, perfect competition is sometimes just a theory, but the Internet is bringing that theory closer to reality for retail consumers. Passy writes:
As more shoppers move online, the competition they are fueling between e-retailers like Amazon AMZN, -0.50% and traditional retailers like WalmartWMT, -0.08% and Target TGT, +0.16% is causing prices to become more uniform, according a new working paper distributed this week by the National Bureau of Economic Research.
The paper’s author, Harvard Business School professor Alberto Cavallo, examined a wide range of retail data to understand how the rise of online retail was influencing pricing behavior among retailers. Through his study, Cavallo found that prices have become less likely to vary from retailer to retailer or across different ZIP codes.
When examining the price of grocery products at Walmart, Cavallo discovered products were more likely to have smaller differences in price across locations if those products could also be purchased on Amazon.
Read more here.
Jeremy Jones, CFA
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