Consumer Benefit from Use of the Internet

The Internet is one of the most important innovations of the 20th century. This paper discusses sources of consumer surplus that are likely to exist due to the types of sites we see being used online and points to research that quantifies the consumer gains from use of the Internet. I also discuss the problems involved in measuring all the gains from use of the Internet. Websites that make traditional sales generate consumer surplus through availability variety and convenience to the consumer. Price comparison sites allow consumers to quickly and easily gather price quotes from a variety of sellers, which results in the consumer paying a lower price. Information sites provide information that the consumer can use to pick an appropriate activity or execute a task more efficiently; often these sites save consumers time in mundane tasks such as buying tickets, checking the weather, or getting driving directions. Likewise, matching sites (such as eBay) improve transactions by hugely increasing the quality of the match compared to the local garage sale. While it's clear the Internet increases price competition so that consumers pay less for products, it also improves daily life by increasing the variety quality and availability of products and information. These gains are particularly useful to people with high transactions costs (busy, rural) and uninformed people. Of course there are existing and potential attempts by firms to hold on to their profits in the face of consumers' lowered search and transaction costs. Corporate responses include lobbying for legal protection, altering product design, restricting the information shared with consumers (obfuscation), and engaging in differential pricing.