NCPA - National Center for Policy Analysis

Online Shopping Offers Cheaper Prices and Wider Selection

May 4, 2004

The advent of the Internet has been a boon to consumers. But the benefits have not only taken the form of lower prices, but also of broader consumer choices.

Research suggests that prices on the internet are 6 percent to 16 percent lower than prices off-line. In 2000, it is estimated that consumers saved about $100 million buying books online through Amazon.

But economists are now saying that cheaper prices aren't the big story -- selection is. The Internet offers a variety of products that is simply impossible in traditional stores. Yet this huge variety is not overwhelming. Online shopping includes tools like search engines, sorting tools, and customer review sites. In addition, through links and referrals consumers are also more likely to discover something that they didn't know about previously. The impact has been significant:

  • According to the MIT Press, in 1997 and 1998, there was a 12 percent annual increase in sales of backlist books.
  • Nearly half the book sales at Amazon -- about 46 percent in 2000 -- were considered "obscure" titles.
  • Consumers are also paying far less for these hard-to-find products than they are willing to: in 2000, savings to consumers reached an estimated $1 billion.

In other words, consumers are getting 10 times the value from the selection as they are getting in lower prices. Technology experts suggest the same thing is almost certainly going on for goods like music CDs, DVDs, and even for services such as Monster (for job hunters) and online dating.

Source: Virginia Postrel, Economic Scene, "Selection Ranks Above Price Among the Benefits of Shopping Online," New York Times, April 22, 2004.


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