Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

19

Advertising, Market Power, and Information

Large retail stores that sell many different kinds of goods and many different brands of each good are a relatively recent phenomenon in the history of commerce. A customer buying, say, a pair of shoes in the early twentieth century would have faced a different shopping experience from the one faced today. The consumer would have been restricted to making a purchase in a specialized shoe store carrying only one or at most two brands, or possibly a cobbler's shop that made its own shoes. In addition, the consumer of a hundred years ago would have had to consult with the store proprietor, and would not have been able to examine and compare the merchandise directly.

How different the modern shopping experience is from the practices of the not-so-distant past. Today's consumer can go to a shoe or department store and see a whole range of different brands. Once there, the consumer can personally handle and inspect each different style without any need to deal with a store employee. Only when the consumer decides actually to try a specific pair of shoes on will the assistance from a store employee be required—and even that is not always necessary. Consumers now may choose directly from an even wider range of different brands and never deal with a sales representative when they purchase shoes over the web.

What has made this dramatic change in the nature of retailing possible? Our reference to the web provides a clue. The retailing revolution ...