How much of a threat does electronic commerce pose to the bricks-and-mortar world today? Not much, suggest recent data collected by the U.S. Department of Commerce. Despite all the hype, online retail sales were estimated to amount to a mere $8.7 billion in the fourth quarter of 2000 or only 1% of retail revenues overall. (These figures exclude sales made by travel services, financial brokers and dealers, and ticket agencies —whether online or offline.)But measuring aggregate sales is a relatively crude method of assessing the amount of competition that offline merchants face from online sellers. A more sophisticated strategy is to determine how relative price changes affect the choice of where to buy: over the Internet or in a local store.This is the approach that Austan Goolsbee, associate professor of economics at the University of Chicago Graduate School of Business, applies in a working paper titled “Competition in the Computer Industry: Online Versus Retail.”On the basis of a December 1998 survey of 90,000 U.S. households commissioned by Forrester Research, Goolsbee constructed a price index measuring the offline cost of a computer in different cities.
