Analysis: Internet Helping Erode Advantages

The Internet has reduced the power position of experts in virtually every commercial endeavor. Prior to widespread consumer access to the Internet, experts had an asymmetric, or lopsided, information and knowledge advantage over their customers or clients.

The expert continues to know more than the layman about a particular subject, but the Internet has markedly narrowed the gap because consumers are better informed.
Physicians and lawyers, for example, are highly educated in their respective fields. Yet, mostly free technical information has become instantaneously available to patients and clients at reputable Web sites like WebMD and DearEsq, while the well-known LegalZoom is essentially an online law firm that provides legal forms and consulting services.

The bestselling book Freakonomics provides a superb empirical example of the Internet’s rationalizing effect on business transactions. One of the authors, Steven Levitt, a University of Chicago economics professor, conducted a carefully controlled study using public data on 100,000 home sales in suburban Chicago. Three thousand of these were transactions in which real estate agents sold their own homes.

The study’s purpose was to determine how well the experts—in this case, the real estate agents—did in selling homes for their clients as opposed to selling homes they personally owned. The key finding was an agent typically held out for a better price on his or her own house.

Real estate agents kept their own homes on the market an average of 10 days longer than clients’ homes but got an extra 3%-plus selling price, which would amount to about an $8,000 premium on a $250,000 house. However, a follow-up inquiry found that, with the proliferation of information on sites like Realtor.com, realtors’ average premium in selling their own homes dropped one-third.

In racing, a farm buyer can quickly find out how much a parcel of land previously sold for by going to the local government Web site that maintains records of assessments and real estate sales; prospective investors in racing partnerships can discern how much a managing partner paid for a colt or filly at auction; and pari-mutuel bettors have the capability to conveniently shop around for the best deal.


William Shanklin, a longtime contributor to The Blood-Horse, is the publisher of the Web site horseracingbusiness.com

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