Mobile Shopping

mShopper is a new retail tool which allows consumers to make purchases via mobile phone.

Internet sales (’clicks’) are already challenging traditional retail (’bricks’) markets and the economics behind these changes is fascinating.

Now shoppers can go in store to buy and discuss the best plasma screen TV with a sales assistant, try on a pair of new jeans, or measure a fridge to see if it will fit in their kitchen… and then check on their mobile for the lowest price. Two text messages later (one to buy, one to confirm) and the product is on its way from the cheapest supplier.

This pushes price comparison to a new level. Mobile connection to the internet makes for a more genuine shopping experience and in big ticket appliances such as TVs and fridge-freezers, some delay between ordering and delivery is expected already, even from a traditional supplier.

Will this make for (closer to) perfect competition? The conditions for a perfectly competitive market are: many buyers and sellers, homogenous goods, low barriers to entry and exit, and perfect information. The first two conditions may be assumed for major brands such as a particular model of Mac or a Sony TV. It is the final two conditions which have traditionally caused markets to be uncompetitive - but is that set to change?

Low barriers to entry requires a value judgement - what do we mean by low? Firms such as Amazon are basically a huge warehouse with a sophisticated logistics function, and where online retailers compete is in establishing sufficient economics of scale to drive down their cost of processing each order, and in using their monopsony power to push down the price they pay for the Harry Potter novel, fridge-freezer or pair of jeans you order from them. What is certain is that mobile price comparisons increase the quality and reduce the cost of information - without even having to find a computer to log onto to complete the purchase.

So far then, a standard analysis of the power of the internet to increase competition.

But what will this do to actual, physical stores (‘bricks’)?

Consumers want physical stores to check goods - dimensions and appearance of an appliance, the fit and exact colour of clothing - but if they no longer buy anything from them (but text through an order to a cheaper, ‘warehouse’ supplier instead), why would they continue to exist? After all, the biggest costs for traditional retailers are land and buildings and staff. Online retailers can penetrate this market and supply us goods cheaper as they do not face these costs.

So are online retailers free riders? This suggests that traditional stores are a public good, or at least a merit good - we want them to exist but we don’t want to buy anything from them. And economists know that this leads to under- or zero supply.

Perhaps A2 Economists in the future will be discussing the case for and against government provision of shops on your high street. Watch this space.