With perfect information about prices and products, consumers can quickly find the best deals, and online retailers will be forced to price at marginal cost. Although there is a price advantage to online shopping, price dispersion or the spread between the highest and lowest prices of identical goods sold on the Internet is as great as that found in retail outlets. Furthermore, the online retailers that offer the lowest prices, seldom have the highest level of sales. By designing a superior Web site, retailers find that they can charge a higher price. Consumers favor sites that provide information about the product such as samples of songs, book reviews and audio clips.
Web retailers increase switching costs by making purchases easy for returning customers.
A new retailer requires this information, adding to the time it takes to complete a transaction. Consumers may be willing to pay a premium to shop at sites they trust. A trusted brand name is important since there is no store and recovering expenditures in the case of failed delivery may be difficult. While on average, bidders pay lower prices, they need to spend time monitoring their bids and the progress of the auction. In the end, they may be outbid and end up without the desired good.