NCPA - National Center for Policy Analysis

How E-commerce Is Fighting Inflation

September 27, 1999

While commerce on the Internet is still in its infancy -- amounting to less than 1 percent of total retail sales last year -- it is holding down prices and helping keep a lid on inflation. That is the conclusion of economists Ethan S. Harris and Joseph T. Abate of Lehman Brothers Inc.

They point out that nearly every item that can be purchased at a traditional retail store is available on the Web -- and sales volume is doubling every year.

Internet prices average 13 percent lower than at ordinary retail outlets even including shipping costs, and 14 percent lower without shipping involved.

Here are some of the savings they uncovered in various sectors of goods:

  • Prescription drugs average 28 percent cheaper on-line, and apparel savings amount to 38 percent.
  • Savings are 28 percent on alcohol and cigarettes with shipping included, but 38 percent when shipping is not included.
  • Savings are 4 percent for home electronics including shipping, and 5 percent without shipping.
  • However, buying toys through the Internet costs 9 percent more than at retail stores and hardware is 2 percent more expensive -- both including shipping costs.

These savings are the result of sellers not being burdened by real estate and rental costs, and reduced outlays for advertising, inventory and transportation -- factors that ordinarily account for some 38 percent of the consumer price of goods, according to one study.

Source: Gene Koretz, "Inflation's New Adversary," Business Week, October 4, 1999.


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