For most many comparison sites look like an easy way to compare prices. Canny customers use them to find the best deal for everything from insurance to home loans. But they’re a source of pricing that businesses rarely use.

Comparison sites work for customers because they overcome the search costs to changing suppliers. Economist, Peter Diamond showed that it cost customers something learn prices by visiting more than one store. Diamond showed that if a store’s price was below a customer’s price expectation then a sale would be made. This learning cost led to stores changing prices, pushing them up.

Comparison sites play on the costs of shopping around. Capturing some of the upward price change taken by suppliers. Usually in the form of a commission. Suppliers pay these sites for customers because they can reduce their sales teams. Customers overlook hidden commissions because headline saving are enough to switch.

The problem with commissions is that they’re an incentive on the broker to give customers to suppliers that pay the most. Business customers understand that sites that help them buy are rarely free. After all most businesses are trying to sell something too so know the strings attached to ‘free’.

Which doesn’t solve the basic problems for business buyers. Because internet supermarkets can’t be trusted. Business’ need to invest in ways that limit search costs and make apple-to-apples comparisons. This is where modern procurement software makes it easy for customers’ fingers to do the walking.

Source: https://medium.com/@bruce.macfarlane/search-costs-f877fcf71e38#.6w523s40r