Paradoxically, price comparison sites may be making everything online more expensive

Armchair shoppers, beware.
Armchair shoppers, beware.
Image: Reuters/Alexander Demianchuk
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The theory goes like this: the internet, with its wealth of choice, allows shoppers to compare prices, and get the best deal. Because trawling through the online pages of different outlets is onerous, price comparison websites sprang up—to help shoppers find goods and services cheaper, and quickly.

But the theory is flawed. The comparison sites likely push up prices, and don’t work unless consumers check every single one.

A new, but no less less onerous task presents itself: a meta-trawl through all the price comparison sites that exist.

While price comparison sites increase competition between retailers, they also make money by charging fees to the companies, levied when a customer clicks through and buys a product. Researchers from Warwick University discovered (pdf) that the existence of a large number of price comparison sites could have the effect of pushing prices up, since the need to pay fees to the website increases costs to industry.

The researchers used a mathematical model to simulate different environments and consumer choices. When shoppers only checked one price comparison website, they ended up no better off than without its use. When they checked them all, they saved money.

The real problem comes when only some of the sites are checked–a likely scenario, the researchers said.

“If consumers are checking a lower proportion of sites, this increases their market power against consumers,” writes study author David Ronayne.

If the number of sites is high and the number checked low, prices could rise enough that consumers would be better off if the price comparison industry didn’t exist at all, he says.

The results illustrate the Paradox of Choice, a theory developed by American psychologist Barry Schwartz. Choice has become a signal that tells us we are free and autonomous, Schwartz argues (pdf). But the unbounded ability to self-determine can mutate into a state of paralysis and unhappiness. Too much choice leads to its own, particular misery.

Some consumers revel in the internet’s offer of limitless browsing and comparison, all available from one’s armchair. But others will recognize the horror of a whole evening swallowed up by ‘research’, where the outcome is that they still haven’t managed to book that flight, or buy that chair for the corner of the living room.

For them, the research offers a good excuse to do what they might secretly prefer: go to the shop, sit in the chair, and buy it if they like the way it feels.