Thursday, December 16, 2010

Information, Prices and Competition: A Bigger Threat to Mom & Pop?

There was a fascinating article in today's edition of The Wall Street Journal. The article (free content at this writing) was about how new apps on smartphones make it easier for people to comparison shop and the pressure that is putting on certain retailers. One anecdote had a shopper seeing a gift for his girlfriend at a big box electronic store. He whipped out his smart phone and found it at an online store for considerably less. He purchased from the online store while standing in the big box.

This article has a lot of potential for use in microeconomics. You can discuss the role of "perfect" or at least improved information in setting prices and making competition. You can discuss consumer and producer surplus, and willingness to buy and sell. You can even go into the idea of value and utility, and make a case that the higher price in the big box was because they offered better time and place utility for the item - delivery and "satisfaction" would have been immediate because of no waiting for delivery.

But I will suggest one more angle. What do these new apps bode for the “mom & pop” stores on Main street? If many of us are upset because various big box stores threaten to put small retailers out of business because of better pricing; how can those same small retailers compete with the lower prices that come with better information? Granted, not everyone has smartphones. But the history of technology suggests that as time goes by, the price of those devices will fall and competitive pricing information will be available to more and more people.

I look forward to your thoughts.

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