said that if economists have a modestly good record in predicting technological changes, this is not the case for predictions about organizational and business model impacts.

There are parts of the economy we can measure fairly well but there are also dark areas that we do not understand. He admitted that some of the keys to the New Economy lie hidden in those dark areas, including ways to evaluate new business models and organizational structures. He talked about two parts of that dark area: how technology and the Internet are changing markets and how they are changing firms and organizations. All of these entities—markets, firms, networks, and network organizations—can be thought of as information processors. Researchers including Hayek, Roy Radner, and others30 have modeled them as such and suggested that they will be significantly affected by the dramatic changes in information processing described earlier in the symposium.

An Investigation of Internet Buying Behavior

Dr. Brynjolfsson started with a discussion of predictions about e-business, including the prediction that the Internet, by lowering search costs and facilitating comparisons among products, would lead to fierce price competition, dwindling product differentiation, and vanishing brand loyalty.31 He cited the rise of price search engines and comparison intermediaries. He demonstrated one of them that can check several dozen Internet bookstores and seek out the best price for a given book and rank them by price in just a few seconds. He found a typical spread among these search engines of about $10 for a given book, which is fairly significant. There is also information about shipping time, shipping charges, and other criteria, but they largely de-emphasize the company itself so that the main feature the shopper sees is the price.

Dr. Brynjolfsson and his colleagues decided to take advantage of the data gathered by these search companies to try to understand how consumers were actually using the Internet to shop. They knew that every book is the same— down to the last comma—no matter who is selling it, so they hoped to detect the motivations for purchasing from a particular seller. They were able quickly to gather over a million price offers from company logs for a period of 69 days. They wanted to see whether a consumer would simply buy from the cheapest source or whether other factors would matter.32


President’s Information Technology Advisory Committee. 2000. Report to the President on Resolving the Digital Divide: Information, Access, and Opportunity. Washington, D.C., February.


See OECD, “Electronic Commerce: Prices and Consumer Issues for Three Products: Books, Compact Disks, and Software,” DSTI/ICCP/IE(98)4/Final for an empirical investigation into the effects of Internet competition.


See E. Brynjolfsson and B. Kahin, eds. 2000. Understanding the Digital Economy: Data, Tools, and Research. Cambridge, MA: MIT Press.

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