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Shopping in Information

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Consider the phenomenon that is being called “The Great Retail Apocalypse of 2017”: a massive closure of physical retail shops in the U.S. Over 4,000 locations were affected, with some retailers such as Payless Shoe Source, Sports Authority, RadioShack, The Limited, and Wet Seal declaring bankruptcy. Major players, such as JCPenney, Sears, and Macy’s have closed over 100 stores each, with the latter eliminating 10,000 jobs as a result. According to an article in The Atlantic,7 the simplest explanation is the rise of online retailing, particularly through Amazon.com, whose sales in the North American market quintupled from $16 billion in 2010 to $80 billion in 2016. Shopping has always been grounded in information. The buyer who has less information about prices than the seller is at a disadvantage. Information environments such as Amazon do a better job than physical shops as settings for the sort of information arbitrage that happens in a commercial transaction. When you shop for something in Amazon, you are a much better informed—and therefore, more powerful—purchaser than if you shop in a physical store. The economies of scale that come from serving a larger customer base lead to lower prices. Since the system is freed from the constraints imposed by physical stores, it can offer much more diverse inventory. And because the environment is made of information, it can reconfigure itself dynamically to make the relevant parts of this inventory more easily available to each individual customer. The combination of these factors is difficult for physical retail stores to compete with.

Living in Information

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