The effects of market-enabling Internet agents on competition and prices

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Abstract:

The Internet offers a vision of ubiquitous electronic commerce. A particularly useful feature is the ability to automate the search for price or other information across multiple vendors by using an “agent” to retrieve relevant information. The use of agents has the potential to dramatically reduce buyers’ search costs. We develop a framework that suggests that vendors who sell products with many differentiating factors beyond price will tend to accept agents, while vendors of commodities or branded goods will tend to resist them unless they have lower costs than their competitors. Empirically, we found that agents seem to be accepted for differentiated goods, but resisted for more commoditized goods, though not universally. An analysis of prices from one agent shows that 1) a small number of vendors tended to have the lowest prices and 2) while divergence in pricing remains, price dispersion declined over the period studied.