On Friday the New York Times ran an article on how online retailers constantly adjust prices to match their competitors. Their ability builds on many tools from computer science, from networks to algorithms, not unlike airlines and hedge funds. But is this good for the consumer?
Suppose I work for bestbuy.com and have a television priced at $500, which matches the price on amazon.com. If I lower my price to $450, than I can expect Amazon to do the same. I've gained little from lowering the price, only $50 less dollars than I had before. Likewise Amazon has little incentive to lower their price. This hypercompetition can actually lead to collusion without colluding. Hal Varian talked a similar theme of price guarantees in a 2007 Times viewpoint.
In practice, companies still lower their prices but as networks get faster, algorithms get smarter and more people shop online, we might actually see higher prices and less competition, which I believe is already happening with the airlines.