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The Internet will cause prices to go down because...
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The Internet is a communication medium that efficiently brings parties together, and thus can and does provide buyers with access to a larger number of selling firms. This should foster competition among firms and drive prices down.
Because of the Internet, firms will now have to compete against other firms that were once not competitors -- perhaps because these other firms were thousands of miles away. Of course, a firm's geographic location is practically irrelevant in cybershopping.
For example, consider the following two firms:
8th Street Music Center - a full-line music retail store specializing in keyboards, midi gear, software, guitars and accessories.
Musician's Friend - world's largest direct mail music gear company featuring a huge selection of top-name guitars, basses, keyboards, amps, signal processors, recording equipment, and a wide range of essential gear for the stage a studio.
8th Street Music Center is located in Philadelphia, Pennsylvannia, while Musician's Friend is in Oregon -- on the other side of the U.S. However, a person can order some of the very same products just as easily from either firm. In fact, some of the customers may not even know where these companies are located!
Also note that Musician's Friend guarantees to have the lowest price available on all their equipment. So, when 8th Street Music Center has a sale on a particular item, Musician's Friend promises to sell you that same item for the same sale price! Compare the prices of the Korg D12 Recording Package Studio at both places.
Korg D12 at 8th Street Music Center
This product is advertised to be less expensive at 8th Street Music Center. Based on this information, a customer could call Musician's Friend and negotiate a lower price for this product.
This is a clear example of how the Internet can drive down prices!
In addition, firms can "build" a home page on the Web much more quickly and cheaply than they can construct or move into the typical building required for a conventional retail store. In other words, market entry and exit are inexpensive on the World Wide Web, which has greatly increased the number of firms competing within certain industries.
Consider the large and increasing number of brokerage firms establishing Web sites with online trading. For example, Datek Online is an investment service that lets you buy and sell stocks on the New York Stock Exchange and NASDAQ online -- for just $9.99 per trade.
Many other online brokerage firms are listed in the following Yahoo directory:
Business and Economy > Shopping and Services > Financial Services > Investment Services > Brokerages > Discount
The competition is intense!