Internet Retailing Rewards Consumers With Lower Prices
January 4, 2001
A new study comparing trends in life insurance costs for consumers purchasing over the Internet shows that competition is driving prices down.
Jeffrey R. Brown of Harvard University and Austan Goolsbee of the University of Chicago had noticed that average prices of term life insurance suddenly fell sharply in 1996 and 1997 -- just when a growing number of websites began offering price quotes from a variety of companies to those shopping for this insurance.
So the authors did research to see if the two trends were connected.
- They found a strong correlation between rising Net usage and falling term insurance costs.
- The authors estimate that each 10 percent increase in the share of individuals in a group using the Net reduced the group's average term insurance costs by 3 percent to 5 percent.
- By 1997, annual nationwide savings to consumers totaled $115 million to $215 million.
- So the Internet -- by allowing people to comparison shop without having first to contact a variety of insurance agents -- apparently drove insurance prices down not only for Web surfers, but for their neighbors as well.
This suggests that many other markets will become increasingly competitive as consumers have more data at hand. That should be good news for consumers -- and sobering thoughts for producers whose profit margins could get squeezed.
Source: Gene Koretz, Economic Trends: "E-Commerce: the Buyer Wins," Business Week, January 8, 2001.
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