Essay on Charles Schwab Case
In the mid-1990s, the growing use of the Internet induced online brokers to launch Internet trading. In the years since, several discount brokers, as well as pure electronic brokers, entered the new business segment and fought aggressively for market share.
The Internet offered such firms essentially two technological advantages.
First, online brokers can provide less expensive trade execution than their offline counterparts. Placing orders online allows investors to circumvent personal brokers, reducing transaction costs. As a large number of investors established Internet connections, the web became a ubiquitous network that can be used as a communication channel between a brokerage firm and its customers. Online trading also lets brokerage firms automate their order placement process, thereby economizing on personnel time and effort.
Secondly, the Internet contributed to the emergence of online trading by becoming a medium for the transmission of information. Large groups of consumers became increasingly sophisticated and more able to direct their own financial affairs without the help of a personal broker. The Internet facilitates the diffusion of information, eroding one of the main advantages of professional brokers: