Who Really Benefits From The Net? You Do. In any market, buyers always want the lowest price and sellers want to maximize profits. But in the market tug-of-war now occurring on the Net, it looks like consumers are winning.
(MONEY Magazine) – A win-win situation: That's what consumers and vendors were promised in the early days of the Web. Consumers, it was widely declared, would get better prices and a new way to comparison shop. Producers--ranging from clothing retailers to banks and brokerages--could use the Net to sell their products more efficiently, which would cut their costs and create fatter profit margins.
Reality may not be so rosy. A new study of term life insurance prices by Harvard University's Jeffrey Brown and the University of Chicago's Austan Goolsbee, lends credence to the now growing suspicion that the Web may be better at giving consumers lower prices than at providing merchants with lower costs.
Looking at data from 1992 through 1997, the duo found that the price of term life insurance began to decline sharply in 1996, just as websites that allowed users to comparison shop for term policies began to appear. They estimate that lower insurance prices saved consumers $115 million to $215 million in 1997.
"This is a case where the Internet puts price pressure on a company even if it has nothing to do with the Internet," Goolsbee says. "If you're a life insurer, just the fact that your customers have the option of looking at prices online means that you still have to respond to price pressure."
The larger implication? Industries traditionally adept at inhibiting price comparisons--airlines, lenders, brokers, even luxury-goods merchants--are the most prone to see their profits go down. It hasn't come yet, but we may very well see the day when many companies declare that the Internet was the worst, not the best, thing to ever happen to them. "It's not to say that nobody will ever make a profit," Goolsbee says. "But it certainly suggests that some parts of the Internet industry will be harder to survive in."