Virginia Postrel writes about Eric Brynjolffson's finding that the internet is more important as an improvement in consumer choice than as a reduction in consumer cost:
Posted by DeLong at April 23, 2004 02:25 PM | TrackBack | | Other weblogs commenting on this postThe New York Times Economic Scene: Choice Trumps Price on the Internet: But when [Brynjolffson] thought about how people actually shop online, and what they find valuable, he realized that low prices are not the big story. Selection is. The Internet offers variety that is simply impossible in traditional stores.... Online shoppers are not just buying the same stuff for less money. They are buying different stuff. And they are much more likely to be getting exactly what they want than are off-line shoppers. Wal-Mart has low prices, but Walmart.com carries six times as many items as the largest Wal-Mart store, the article says. "Amazon's slogan is world's biggest selection, not world's cheapest prices," said Professor Brynjolfsson, who has done pioneering research on information technology and productivity....
You are not only more likely to find what you are looking for online. You are more likely to discover something you like that you did not already know about, Professor Brynjolfsson said.... "In effect, the emergence of online retailers places a specialty store and a personalized shopping assistant at every shopper's desk," write Professor Brynjolfsson, Yu Hu, and Michael D. Smith.... (The article, "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," is available at http://ebusiness.mit.edu/erik/.).... By estimating what the demand curve for books looks like, using well-established techniques, the researchers could estimate the consumer surplus for all buyers in this market.... "The consumer surplus was about 70 percent of the purchase price for each book sold," Professor Brynjolfsson said. "If a book was purchased for $20 on average, consumers would have been willing to pay on average up to $34."
All those benefits add up to big money - around $1 billion in 2000. By comparison, Amazon's lower prices saved consumers about $100 million that year. "So they got about 10 times as much value from the selection as they got from the lower prices and competition," Professor Brynjolfsson said. "An order of magnitude more value was created from the increased choice and selection."
For me it is a interesting mix of *lack* of variety and price, the latter being more important: used old editions of textbooks for 10%-30% price of new, usually with nearly identical content.
Host's texts excepted of course.
Posted by: jml on April 23, 2004 05:17 PMBookfinder (www.bookfinder.com) can find anything in English, in print or out. Not too bad for French, Spanish, and probably German. You never need to look for a book again.
Posted by: Zizka on April 23, 2004 05:33 PMhttp://www.bookfinder.com
Posted by: Zizka on April 23, 2004 05:34 PMThe only way I can buy many computer parts is online. My area isn't tiny (NW Arkansas), but there's not a store around that carries motherboards in stock. There are a couple that will order them - but if I still have to wait, why pay them extra for it, when I can order it myself, at a discount?
Posted by: Jeff Lawson on April 23, 2004 10:36 PMThe first thing I ever ordered online was my beloved Lee Harvey Oswald Band t-shirt.
Some perv took the infamous photo of Ruby about to shoot Oswald, and Photoshopped guitars, drums, and a mic into the photo so that it looks like a musical combo with Lee on vocals. I saw the resulting pic online, said "That's perverted and disgusting - I gotta have it!" And a few days later, I did.
Can't imagine where I'd find something like that in the stores.
Posted by: RT on April 24, 2004 03:48 AMInteresting twist on the online bookselling story: I am a dabbler in the book business. Yes, you can find unbelievable variety and obscure titles. The latest business model is "race to the bottom." Ebay and Amazon.com sellers price their books at .01, and hope to make profit on high-volume sales. Amazon gives a small allowance for shipping, so a seller may end up making .50 or so on his penny book.
Ebay is in the process of shutting down its Half.com business and is trying to find ways to bring those buyers and sellers to its site. They are pushing people to list and buy books using ISBN numbers, so people in the pre-ISBN business are finding less support for their products in the new search model.
It's a constant source of discussion among oldtime bricks and mortar sellers and new online sellers how to maximize sales and profits. The opinion seems to be that Ebay was more profitable for sellers in the past before everybody and his brother decided to try his hand at selling a few old Readers Digest Condensed Books online. If you're not depending on book sales for your income, it is no great loss to dump a cartful of semi-valuable books for pennies, as long as you wind up in the plus column.
Also, Ebay's constant fiddling with search methods has cost sellers lots of money in listing fees, when their books cannot be found by interested buyers. Ebay still makes its .35/listing, minimum. For the seller who lists 100's or 1000's of books a month, that enriches the bottom line for Ebay.
I don't have a very deep understanding of Economics, but my small venture into this arena has been interesting. Maybe I should have taken a Business class in college, but all those years ago I never imagined myself an entrepreneur of any kind.
Thanks for the great blog.
Posted by: wenchacha on April 24, 2004 08:33 AMVirginia Postrel strikes again.
"Shopping is Great!" (Go consumption, go consumerism, go materialism. Everything else will fix itself.)
"Consumer consumption and multiplicity of choice is as important as anything I could possibly choose to write about!" (yeah, write a few more stories about how because we now have items a,b,and c life is so much better - for everybody - and all we need to do is keep expanding consumer choice.)
Why does Brad keep boosting her?
Posted by: jacko2 on April 24, 2004 08:41 AMRegarding "consumer choice": Even with my quite modest shopping needs, the internet enables my choice not to spend hours on the road and parking lots, rushing from store to store, and tracking down where they are hiding the merchandise that I'm looking for. Or at least it makes the hunt more efficient by providing background information prior to hitting the road.
Otherwise, whenever I hear this consumer choice thing, I'm reminded of the "I don't want more choice, I want products that I like".
Nonsense. I ntried to find a copy of Roy Horniman's "Israel Rank" and it's nowhere on the net.
Posted by: Chris Borthwick on April 25, 2004 04:51 AMVariety vs. Price is a rather false dichotomy; Its not an either/or choice; You get to do both very, very easily on-line.
The more cogent issue -- and more interesting challenge -- arise when looking at on-line versus off-line shopping.
On line shopping is all price, selection, product information, relative comparisons, opinions/reviews, etc. -- all a click or two away. These are simply data points which merely reflect the internet as a massively relational data base. (Google just adds another interleaved layer underneath it all).
Price and/or variety are just different aspects of the same unifying thread: More information about consumer items. Business purchases too, for that matter. (Just cause the B2B stocks cratered doesn't mean that B2B itself isnt alive and well.)
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