NCPA - National Center for Policy Analysis

"E-tailers" Help Keep Prices Down

January 19, 2000

Although there is a great deal of empirical evidence that Internet sales are holding down prices at traditional brick-and-mortar retail outlets, there are as yet no official figures to verify that. The Department of Commerce won't have a system to track on-line sales until 2001.

But it is obvious that millions of products from hundreds of different industries -- from books to cars to credit card interest rates -- are being priced more cheaply on-line than at traditional stores.

Experts disagree among themselves, however, as to whether that situation will continue. If Internet sellers eventually raise their prices, that could add to inflationary pressures.

  • Those who contend the situation must eventually change point to the fact that on-line sellers are now willing to sell at negative margins just to build sales volume -- which can't go on forever.
  • Anecdotal evidence suggests that on-line purchasers are becoming less price-sensitive than they were at first.
  • They seem to be more concerned with detailed product information, more product choices and timely delivery.
  • Still, e-tailers have lower overhead costs than their brick-and-mortar counterparts.

That advantage is built in, allowing them to continue to offer lower prices, even if prices must eventually be jacked up somewhat to achieve profitability.

The Federal Reserve will, without doubt, be watching.

Source: Joseph Guinto, "Is the Internet Killing Inflation?" Investor's Business Daily, January 19, 2000.


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