Economics of Online Shopping for Cigarettes

Price shopping comes with its own price: While it seems like it’d be logical to always find the cheapest place you can buy what you want, it’s not always best. Let’s take cigarettes as an example, as they’re something that buyers buy frequently, with a moderate marginal cost; for the sake of specificity let’s say our theoretical shopper’s favorite brand is Camel. It seems every smoker has a favorite brand that they’ll spend a bit more to get, so the specificity matters; it’s not just hunting for the cheapest pack of any brand, but of the shopper’s desired Camels. Now on their own, a pack of cigarettes won’t break the bank, but they’re not exactly cheap if you buy them a pack at a time at the corner store on a daily basis. Time was when if you wanted cheap Camel cigarettes you had to physically price shop for the cheapest place, often travelling a distance to different places, at that. It wasn’t all that long ago your price shopping was limited by your fuel budget and by your time constraints. Bouncing between stores on foot or in a car is time consuming and costly.

Economics is known as “the dismal science” for its tendency to perceive higher costs than other social sciences do. It does, however, provide us with a wonderful term “rational ignorance” which in the case of price shopping means the point at which the expenditure of more time outweighs the benefits we get from a cheaper product. So let us return to the case of someone looking for cheap Camel cigarettes; their traditional options were to check any store legally allowed to sell tobacco product within a certain range. They would first start with the most convenient, so the places near work or home, or those along the route. This means these places would have the lowest information cost because less time and effort/fuel is being devoted to see how cheaply they sell Camel cigarettes. As the search widens, they include less convenient places, which increases the cost of each bit of new information. As the cost rises, they are more likely to settle for the cheapest price available.

The Internet has radically changed this. Now our theoretical shopper looking for cheap Camel cigarettes can check prices online, read customer comments, and even order the product directly. Most online websites that sell cigarettes will offer a comparison between their price and the leading in store or list price. Sometimes, the online price is half the price or even cheaper. Since the Internet is now truly high-speed, and you don’t have to physically travel to different stores online, you can carefully price shop and price watch to find the cheapest price available. This principle of cheaper information leading to cheaper goods applies to all products, including cheap Camel cigarettes.

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