Pricing on the Internet

It is often claimed that e-commerce has created a more competitive environm ent by encouraging the entry of new online firms and by enabling buyers to search easily for the lowest prices. The limited evidence that exists paint s a mixed picture. Many online markets are advertising- and technology-inte nsive, creating a tendency towards growing concentration. Price search is i mperfect and firms can dampen price competition by increasing product heter ogeneity and switching costs. In many sectors, online firms may come to acq uire some market power. We look at the forms of pricing that are likely to emerge in such markets, including the greater use of price discrimination a nd auction-like trading arrangements.