For consumers shopping online, it is easy to find what they are looking for, to match goods more precisely to their particular requirements and to compare prices. This is especially true for homogeneous goods like CDs, books and software, but also for more complex products, such as airline tickets and mortgages.
Suppose that you are looking to buy a music CD on the web. There are two ways to do this. You can either use any standard search engine, such as Yahoo, Google, type in what you want and get an enormous list of websites, then visit and interrogate each of them “manually” to find the price of the CD. This can be very time-consuming, and realistically, you will be able to check only a few of these sites. But it is still probably better than trawling round or telephoning stores, so there can be significant transaction cost savings from buying
A more efficient alternative is to employ a “ShopBot”. Here you pick the category “music CD”, type in the name, and let the ShopBot visit many sites,’ interrogate them to find the price, and return with the lowest price (or an ordered list of prices, starting with the cheapest). If you were to shop for the CD in real shops, you would need to spend time visiting or calling the shops to find out the price.
Consumers undoubtedly benefit from shopping online. But there are also substantial benefits for retailers. For a start, sellers too can take advantage of reduced search costs to monitor each other’s pricing behavior and may even be able to maintain higher prices.
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