What is the most profound way in which e-commerce and the Internet have changed the relationship between companies and their customers? Support your answer

What will be an ideal response?

Student answers will vary. A sample answer is: The most profound way in which e-commerce and the Internet have changed this relationship is in the shrinking of information asymmetry. An information asymmetry exists when one party in a transaction has more information that is important for the transaction than the other party. That information helps determine their relative bargaining power. In digital markets, consumers and suppliers can "see" the prices being charged for goods, and in that sense digital markets are said to be more "transparent" than traditional markets. For example, until auto retailing sites appeared on the Web, there was a pronounced information asymmetry between auto dealers and customers. Only the auto dealers knew the manufacturers' prices, and it was difficult for consumers to shop around for the best price. Auto dealers' profit margins depended on this asymmetry of information. Today's consumers have access to a legion of Web sites providing competitive pricing information, and three-fourths of U.S. auto buyers use the Internet to shop around for the best deal. Thus, the Web has reduced the information asymmetry surrounding an auto purchase. The Internet has also helped businesses seeking to purchase from other businesses reduce information asymmetries and locate better prices and terms.