Recent studies suggest that the Internet s impact on pricing has been less dramatic than feared.
But search costs look considerably more attractive from a seller s point of view. They buffer profit margins by making it difficult and time-consuming for buyers to find the best deal. Eliminate search costs, and fierce price competition is likely to ensue, making brand largely irrelevant and driving prices close to marginal cost. The Internet has helped drive significant price declines in life insurance and cars, both markets in which buyers use the Internet to gather pricing information but typically make purchases offline. Many other factors, such as improvements in risk management, also contributed to lower prices in this period, says Brown, but the Internet explained up to half of the total decline.