Consumers

The starting point of this thesis project is the observation that as a result of the explosion of the World Wide Web in the 90s, the Internet has become the most profitable and used source of information. It may seem that the drastic reduction of the search and information costs for buyers has pushed the market toward a greater degree of price competition. In fact, lower search costs making easier for buyers to find low-cost sellers, promote price competition, wiping out any extraordinary seller profit. This will results in the increase of market efficiency and total welfare. On the other hand, the reduction of seller search costs allows on-line retailers to use the web layout to provide differentiated and customized products, avoiding competing purely in price. For instance, since products are not constrained in the physical shelf, online retailers can increase the number of offering and information. In addition, since in many cases consumers can customize the products characteristics, sellers have the possibility to manufacture the product after the consumers have placed the order, thus avoiding overproduction costs.