South-Western College Publishing - Economics  
E-Commerce Software Portends Hard Times for Producers
Subject Consumer prices, Internet
Topic Product Markets
Key Words Internet, prices, costs, consumer, referral fee, rebate, incentive.
News Story

The Internet makes it easy for consumers to shop around for the best prices, product availability, shipping costs and shipping time. Now there is software that enables a consumer to compare prices and other features without changing web sites. The software produced by ClickTheButton allows the consumer to click on an icon and view competitors' prices. Merchants do not have to pay to be part of the site.

Dash's software directs consumers to partner retailers who advertise rebates. The retailers pay a referral fee to Dash, which then sends the rebate to the consumer. Companies therefore have an incentive to join the retail partners: if they do not, they could lose business.

Businesses are surprisingly unfazed by these developments. Some welcome the competition, while others feel resigned to it.

(Updated January 1, 2000)

Questions
1. Most stores are monopolistically competitive.
  a) What are the characteristics of monopolistically competitive industries?
  b) Contrast the features of monopolistically competitive industries and perfectly competitive industries.
2. a) What effect will the comparison software have on the retail industry's characteristics?
  c) What effect might it have on the type of competition seen in the retail market? Why?
3. Independent of this software, what do you think is the effect of the Internet on the competitiveness of product markets? Explain in terms of the assumptions you mentioned in Question 1.
Source Bob Tedeschi, "E-Commerce Report," The New York Times, November 22, 1999.

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