[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

a high-price store may still be able to keep some customers—and its higher profit per
sale offsets its lower level of sales. Thus, price dispersion can persist.
Given price dispersion, combined with variations in quality, households and firms
must spend considerable energy searching. Workers search for a good job. Firms
look for good workers. Consumers search for the lowest prices and best values. The
process by which this kind of information is gathered is called search.
Search is an important, and costly, economic activity. Because it is costly, a search
stops before you have all the relevant information. A Google search may turn up
thousands of references, but you are unlikely to scroll through more than the first
few pages of the results. Because links that appear near the top of the list are more
likely to be clicked on, the order of search results is extremely important. A site on
the second or third page might be an even better source for the information you are
seeking, but navigating through all the links until the perfect one is located is just too
time-consuming. Similarly, after buying a new shirt for a special occasion, you may
worry that you might have found an even better one if only you had visited one more
store. But in truth, there should be no regrets. Going to more stores is costly in
terms of your time, and there is always a chance you would not have found anything
e-Insight
INFORMATION TECHNOLOGY AND MIDDLEMEN
Perhaps the defining characteristic of the new economy is the
role of information technologies. These new technologies make
possible the collection, analysis, and transmission of vast
amounts of information—more efficiently than anyone could
have conceived even ten years ago. The new technologies no
doubt will improve the flow of information in all markets,
including product markets. Some have suggested that it will
completely eliminate the need for middlemen such as retailers
and wholesalers. Instead, consumers will be able to deal directly
with producers. Those claims are greatly exaggerated.
To be sure, in some markets information technologies will
diminish the role of middlemen. Already, many consumers are
buying computers, insurance, books, and airline tickets over
the Internet. The Internet will make an enormous difference
in the dissemination of prices about homogeneous products—
a particular form of wheat, or steel, or a new Buick with a
deluxe sound system, leather seats, and so forth. But the hardest
choices often involve differences in quality and characteristics.
In fact, most retailers see their job as searching among
producers and making judgments about the quality of the
goods that different manufacturers produce. Retailers who
establish a good reputation do so on the basis of the quality
they offer at a particular price range. Because much of the relevant
information concerning quality and characteristics
cannot be conveyed easily over the Internet, consumers still
need direct access to the product. For instance, without actually
sitting in a driver’s seat, how can an auto shopper detect
whether the controls of a car feel right? The same point can be
made for various other products. Thus, information technology
is unlikely to make middlemen obsolete. We may visit a
local bookseller less frequently, but instead we browse an online
retailer such as Amazon.com or Borders.com for the latest
books. Searching for books by visiting each individual publisher’s
Web site would be too time-consuming (and thus costly).
Most travelers find it more convenient to search travel sites
that show flights and fares for several airlines than to check the
online home of each carrier. The Internet has changed the
nature of middlemen, and may have made them more competitive
and efficient, but they still have an important role to
play in the modern economy.
344 ∂ CHAPTER 15 IMPERFECT INFORMATION IN THE PRODUCT MARKET