Search costs — the time and money spent locating the best product at the best price — are a familiar and often unwelcome aspect of everyday life. Think of the nail-biting hours you logged on the phone last December when trying to get your hands on a PlayStation 2 or the teeth-gritting experience of driving from dealership to dealership in search of the perfect car.But search costs look considerably more attractive from a seller's point of view. They buffer profit margins by making it difficult and time-consuming for buyers to find the best deal. Eliminate search costs, and fierce price competition is likely to ensue, making brand largely irrelevant and driving prices close to marginal cost.E-commerce threatened to do just that: make vast amounts of information readily available, leading to slashed prices and razor-thin margins. But recent studies suggest that the Internet's impact on pricing has been less dramatic — especially online — than some may have feared.The Internet has helped drive significant price declines in life insurance and cars, both markets in which buyers use the Internet to gather pricing information but typically make purchases offline.
