Markets can only be competitive when information is ubiquitous and barriers to entry are low. This, I think, is one of the less talked about revolutions brought about by the internet: the creation of hyper-competitive markets that have led to superior outcomes for consumers.
You're not factoring in the fact that the Internet creates huge monopolies (just like money also has a natural monopolizing effect; in other words "rich get richer, poor get poorer").
We end up with a couple of huge Internet companies which will increase their pressure as soon as they are sure that they are "strong enough" (meaning: protected from healthy competition which usually favors the consumer).
Example: Amazon - they currently keep only a very tiny margin, because they are still about increasing their overall market power. Once they have maximized that, they will use their power to increase their margin and all players (including the consumer) will feel their heat.
That's the claim, where's the evidence? What exactly prevents anyone from entering the market once Amazon raises prices?
I'm not a fan of Amazon and I don't think I've ever even bought something from them, but I think there's too much paranoia over market dominance.
Like Standard Oil, Amazon is ... obsessively keeping margins down for the sake of keeping margins down. Who would have to fall by the wayside for them to "win"? WalMart?
Don't look now, but WalMart has quite the online retail presence. I'm not sure how to evaluate the advantage/disadvantage of "in store pickup" but I've used it for big bulky things, when I'd needed better control over when I took possession of the item.
Meanwhile, Amazon's effect may well be part of our increasingly deflationary economic cycles.
IMHO, the internet has given rise to a different kind of monopoly: 'network' monopolies. I'm not sure if Amazon could be considered one: sellers don't face high switching costs or high costs associated with selling on multiple Amazon-like platforms at the same time. Neither do consumers. So both sides of the market are fairly price sensitive, and large positive 'same-side' network effects don't appear to be present. In Amazon's case, same-side network effects might actually be negative on both sides of the market (i.e. more consumers means higher demand and therefore higher prices for consumers, more sellers means more competition for sellers and therefore lower prices for sellers).
Android and iOS, and their respective app markets, are probably better examples of network monopolies (and possibly a 'winner-takes-all' market). These kinds of monopolies pose interesting questions for government: Should they regulate? How should they regulate? Do existing anti-trust laws cover these situations?
Wikipedia has some good material, in case you're interested in some further reading:
The only problem is that much of the information isn't reliable, which creates competitive markets that aren't always good for the consumer.