Internet Economics Empowers Consumer, Curbs Prices

Dan Clemmensen (
Tue, 07 Jul 1998 09:00:22 -0400

A reuters news item on Yahoo at:

Notes that the internet is dramatically increasing the "efficiency" of the market for many products. Basically, since anybody can now easily find the current advertized prices, It's very hard for a merchant to charge too much. According to the article, this is occuring mostly in the US and mostly so far in business-to-business situations. While acceptance is slow as measured in internet time, it's very fast as measured in normal time. The article mentions several possible effects, but I'll make some predictions of my own here.

Basically, we're looking at an increase in market efficiency. This is an technical economic term that relates to the ease of acquisition of information and the cost of a transaction (and which I am probably abusing through ignorance.) Such an increase tends to favor the buyer in the short term, and favors the more efficient producers over the less efficient producers in the long term. This ultimately drives down the cost of goods.

I perceive a second effect. The cost of sales should also go down. Basically, each sales and marketing person should sell more. Essentially, the internet and the associated host computers are automating much of the sales/marketing job on the seller's side and much of the purchasing department's job on the buyers side. In addition, the fact that the transaction is electronic also minimizes the financial paperwork for buyer, seller, and within the banking system. Basically, This automates much of the buying, selling, and accounting.

The moral of this story? Just as the PC automated most secretaries and many middle managers out of existence over the last ten years, internet commerce will automate many sales, marketing, purchasing, and accounting jobs out of existence over the next few years. The percentage of administrative personnel within a company will continue to fall.