Econ 203 - the Evolving Economic Power of the Internet

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Product markets have become highly competitive since its rise. Buyers now have access to suppliers worldwide and the competition between suppliers has increased. As a result the costs of products are being driven down and the product quality is being increased. This has made it easy for consumers to compare which competitors price is cheaper and of better quality (Lal and Sarvary, 1999). The internet has lowered the cost of distribution and the cost of a consumers searching for a product. This has lowered barrier of entry and has created the closest thing we have to Adam Smith’s idea of perfect competition (Lal and Sarvary, 1999). With the higher competition, also comes more uncertainty for businesses. The smallest difference in price from one competitor to another, can affect who sells and who struggles to sell their product. For many retailers the most significant threat of online customers is that profits will be eroded drastically by the intensification of price competition, as consumers search for the lowest costs (Lal and Sarvary, 1999).

The internet has proved to be an amazing marketing tool for businesses the world over. It has connected your average Joe to your cousin in China. It has become the great equalizer in marketing. We must remember however, as the competition increases, it has also become increasingly harder to enter this world, without feeling the intense stresses of price competition. Advertising your products online has become more of how to make your product stand out in front of the masses.

The internet will continue to evolve as the years drag on and with each evolution, comes more ways to improve the world of product markets. Past and future improvements of the internet will continue to expand and improve the way we conduct business in economics. It will be interesting to see what the future of the internet will hold for us. This is why the internet has become an important economic phenomenon. It may very well be the most important economic phenomenon in our history to date.

Figure 1. Internet Users as Percentage of Population 2010. Data Source: Intelligent Positioning.

References

Lal, R., & Sarvary, M. (1999). When and How Is the Internet Likely to Decrease Price Competition?. Marketing Science, 18(4), 485-503.

Sam (2010, May 12). Global Internet Usage 2010 Facts and Stats. Retrieved September 19, 2012, from Intelligent Positioning website: http://www.intelligentpositioning.com/blog/2010/05/global-internet-usage-2010-facts and-stats/