Online Prices to Rise?

from the hmm... dept

Thu, Aug 24th 2000 3:22am — Mike Masnick

Here's an article that attempts to look at the economic reasons why prices for goods online may soon rise. I don't buy it. While it's true that online retailers know they need to make profits now, they also know that many customers make decisions based on price. It's always tempting to show that you're the "low cost" provider. Basic economics would also suggest that as margins start to rise, other competitors will jump in and the margins will shrink again.

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Ed Postmodern, 24 Aug 2000 @ 7:01pm

Interesting Economics
The article makes some good points, noting that, unlike in the past when buyers were assumed to react to price changes faster than sellers, online sellers can now react to price changes by their competitors as fast as, if not faster than, the buyers.

Your suggest that as margins tend to increase, new sellers will appear to drive the price back down. That may not work out. A seller already online can adjust prices instantly. A new seller takes a relatively long time to establish an online storefront. The problem is that the new seller can't count on a lot of business by undercutting the competition because the established sellers can instantly lower their prices to match, so that might discourage new sellers from entering the market at all.
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Mike (profile), 24 Aug 2000 @ 7:31pm

Re: Interesting Economics
This is true. However, my assumption is that, unlike the airline industry, the concept of implicit collusion is unlikely in the e-commerce industry. There are already a large number of e-commerce sites out there, and about the only claim to fame they can make is that they have the lowest prices available... It really does not make sense for them to continue to raise prices, especially if someone else undercuts them.
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