Collusion in an Online Environment

The Internet allows people to compare prices easily and buy from retailers selling for the lowest price. Most research in this area argues that this will lead to price competition between firms and a higher consumer surplus as a result. This paper argues that the Internet can have a negative impact on welfare as well. By making markets more transparent, in some cases the Internet can actually facilitate collusion and lower the consumer surplus as sellers make use of the same facilities available to the consumers: the price comparison sites.