Among the many features of the Internet, we will focus, in particular, on information costs, input costs and catalogs. E-commerce is characterized by high price transparency. With the Internet, finding pricing information becomes easier. Some sites (Shopbots) even specialize in comparing offers (for example, sites)
Since the cost of finding information is lower than in the physical markets, it is expected that online sellers will compete more intensely. Internet prices should, in principle, be lower and less dispersed than in physical markets. But it can be argued that a more transparent market can stimulate sales-oriented behavior and reduce price competition. Because each site can better track the strategies of its competitors and quickly respond to aggressive behavior, therefore, you can implement a quick and personalized retaliation against those who do not respect price discipline, therefore, greater transparency has an ambiguous effect on the price level and degree of competition.
This tool for e-business promotion and entry should facilitate price competition. But an excess of sites can create confusion with consumers. The latter, faced with a large number of sites, may give preference to the most famous sites, especially with a physical presence. Moreover, online payment and product delivery delay make the transaction much more uncertain than in the case of a physical transaction. What guarantees are offered in case of non-delivery or delivery of defective goods? Where is the geographic location of the company managing the online sales site? The uncertainty or ignorance in which online shoppers find themselves is beneficial to physically located distributor sites. For example, cultural products can play on their image and reputation to reassure online shoppers.
For beginners (a pure player – without physical presence), the need to invest in advertising in order to express themselves and build a reputation for themselves increases the cost of entry. Similarly, the technical quality of the site (ergonomics and quality of interfaces, reliability, download speed, etc.), which are important for inspiring confidence in potential customers and maintaining its reputation, requires significant investment. Finally, we must not forget about the costs of logistics, from accepting an order to delivery. Logistics, which is the main source of costs for an e-commerce site, plays a decisive role in satisfying the end consumer (meeting delivery deadlines, …). All these investments are less barriers to accessing the Internet than barriers to development, and, of course, limit the number of viable firms in each sector.
Another feature of the Internet is the low cost of the catalog (menu cost). In physical stores and even more in mail order catalogs, these costs are large enough to limit price changes. The seller does not always optimally systematically respond to changes in demand and distribution costs, i.e. constantly adjusts prices in accordance with market conditions. The latter should change their rates only if the difference between the optimal price (which maximizes its current profit) and the displayed price becomes too large, and the price of the price change is more than offset by the expected increase in profit.
After all, in physical markets, price changes are expected to be rare, but significant in magnitude. Conversely, on the Internet, low catalog prices should lead to much more frequent price changes, but on average less. Therefore, prices should better reflect market conditions. This ability to change prices can also affect collusion opportunities. This allows sites to respond faster in case of aggressive policies of one of the competitors, focusing, for example, on the prices of the latter. Thus, low catalog cost is added to price transparency, which contributes to the stability of potential collusion agreements in online sales. However, this behavior contradicts the competition of physical markets: consumers always have the opportunity to make a choice between buying through the Internet and buying through the Internet, which forces e-commerce sites to influence their pricing policy.