Digitalization: Prices of goods and services

What are the implications of digitalization for prices? This paper explores this question by looking at the various channels through which digitalization can affect prices. First, we assess the importance of the direct channel - the prices of digital goods and services in the consumer price index (CPI) basket. Then we discuss indirect channels related to automation and cost reduction as well as competition and markup. We also review the rise of e-commerce and how it can affect price-setting behaviour. Finally, we highlight important questions yet to be answered that will enhance our understanding of digitalization's impact on prices.