Lessons About Markets from the Internet

Abstract

any of us have grown used to, tired of, and finally downright skeptical of claims of the transformative powers of the Internet.It was to usher in the New Economy, but we seem mostly to have the Old.It would transform retail, but Toys 'R' Us has outlasted EToys.Frictionless commerce would be the norm, but plenty of friction still exists.The Internet was also claimed to require a whole new economics with all new laws.While this, too, was very far from the truth-existing theories have mostly done quite well-the Internet has had a substantial effect on economic thought.In this paper, we discuss some ways in which the Internet has affected how economists think about markets.That the Internet has affected economic thought is perhaps surprising.Some economic events, like the Industrial Revolution and the inflation of the mid-1970s and early 1980s, have had a major impact on the way economics is done.But other major events, like the development of the interstate highway system and the 1987 stock market crash, seem not to have made much of a difference.For this reason, we begin in the next section with a brief discussion of what about the Internet seems to be making it important to economic research.We then turn to our main task and discuss two specific topics that received a lot of attention in the popular press and that have been viewed differently by y

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