Lessons about markets from the Internet

Many 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.