The Internet Increases Apparent Supply

Modahl points out that in the traditional marketplace there is a difference between actual supply and the supply that is apparent to the customer.

When a buyer seeks a product, whether it is information such as news or hard goods like groceries, they go to the market. But the market is only as large as the one that a consumer can reasonably address.To an isolated villager, the “market” is limited to what is piled up in the stalls of local merchants. Similarly, when a woman drives in her sedan to the mall, she chooses a blouse from among the stores in the mall. If she wants to, she can drive another forty-five minutes to a discount store like TJ Maxx or Frugal Fannies, where it is possible (though she can’t be sure beforehand) that she’ll find the exact same blouse at 50 percent off. But most women
won’t take the time to go find out.
In the cases of both the villager and the mall shopper, the actual supply of whatever they were seeking is many times larger than the supply around which they must make their purchase decisions. However, it simply isn’t practical for consumers to locate and include all of the actual supply when making their decisions. Instead, consumers make their purchases from the supply they can easily find—the apparent supply. While there is no evidence that the Internet increases the actual supply
of goods in any consumer market, it clearly increases the apparent supply. . . . Once on-line . . . consumers can visit both upscale shops and discounters without moving an inch. In addition, new price-comparison engines sift through hundreds of web sites, searching for the best price on a given item.As a result, the Internet is driving up the quantity of goods that consumers can see and driving down prices.

The actual difference in prices for identical products charged by ecommerce and traditional retailers can be considerable, says Modahl. For example, she reports on an experiment undertaken by Forrester in which the researchers used price-comparison software readily available to consumers to check prices on a CD, a kitchen appliance, and a personal digital assistant. On average the e-commerce sites were quoting prices 15 percent below their brick-and-mortar counterparts. The CD was available on-line
for 37 percent less. Price differences such as these and, more importantly, writes Modahl, the ease with which consumers can discover these differences is certain to “cause real problems for companies whose products are sold at different rates in markets separated by geography or information. . . . Price differences based on poor information or geographic distance won’t stand up very well in the Internet economy.