How does Internet change supply and demand?

I observed that the Internet has changed many companies’ sales strategies and individuals’ consumption habits. Such change could directly change the market supply and demand relationship, thus the pricing in the market.

I would like to talk about how the Internet changes individuals’ consumption habits before moving to the supply side. Firstly, it gives consumers more information about the market, as they are able to search information about their preferred products online from an enormous database. By having the access to the Internet, consumers are more likely to understand their products and choose their products with the cheapest prices in the market. Secondly, it is much easier for consumers to make irrational consumption. Buying products online does not necessarily give consumers a sense of decreasing in their budgets, while the most traditional trades are much better at signalling the consumers; this is because the Internet makes online transfers too easier and too faster to make consumers realise their budgets have been influenced by their consuming decisions. In addition, as transfers can happen so fast, it leaves consumers with less time to self-judge their decisions before making their consumption. Thirdly, the Internet has made consumers to have access beyond their previous knowledge, this allows consumers to find more their consuming targets. This may imply that consumers can find more complementary products or substitutes, and it may imply that consumers may increase in their demands for some products which they never thought of, and lower their demands for other products. Fourthly, the Internet has made the communication between consumers and their supply companies easier and faster. When consumers are easier to directly contract their supply companies, their demands for better quality after-sales quality become realised by their supply companies and after-sales quality becomes a factor that could influence consumers’ consumption decisions when companies start to notice and use this demand as their selling point.

Then I would talk about how the Internet influence the supply side’s market strategy. Firstly, the Internet changes companies’ advertisement strategies. When more and more people have access to the Internet and spend more and more time online, companies have to spend more resources in advertising on the Internet. There are two main strategies to advertise online: the first one is to advertise as much as possible in order to cover as many potential consumers as possible, the other way is to allocate their consumer groups and directly advertise to them. The first way is the easiest way to advertise and raise attention from their potential consumers, but the costs could be very high because they need to post the enormous advertisement on countless websites. The second way is smarter and more cost-effective; however, companies have to understand their potential consumers’ identities and characteristics and  create more direct paths towards their potential consumers to directly advertise to them, the risk here is that if they fail to identify their potential consumers, it could make companies fall out of the market faster. Secondly, the Internet makes business winners strong and win more. The Internet opens a larger market for almost all businesses. When the Internet builds faster and more direct communication between companies and their potential consumers, companies are able to find more of their potential consumers. Thirdly, it is easier for companies to establish cooperation with each other. When companies have access to more information, they are easier to find their ideal business partners and understand their business partners. Moreover, as the Internet makes information travel fast, when a company betrays its business partners, its partners are more likely and faster to know its betrayal and conduct an immediate revenge action; this increases the costs of betrayal and makes cooperation more stable and long-term.

Overall, I think the biggest changes brought by the Internet are the merge of the global markets and the easy access to more information. The merge of the global markets creates opportunities for all companies and allow consumers to have access to more products. The easy access to more information makes price competition more costly and encourage cooperation, but it also makes other types of competitions available and more preferred. The Internet would only lower the prices when the costs of productions are lowered under economies of scale, and increase competitions in other fields other than the price competition.