The internet shopping study (PDF) from the Office of Fair Trading (OFT) found that some shoppers could find better deals by searching more effectively, while many could do more to protect themselves online.
It also noted that most web shoppers do not know that they have cancellation rights when shopping on the internet.
According to the report, the UK internet shopping market is estimated to be worth over £21.4bn, and over 20 million people shopped online last year with nearly a third spending over £1,000.
The OFT also found that many businesses are unaware of their obligations under Distance Selling Regulations which provide additional protection for shoppers when buying online.
The regulations give extra protection to consumers who purchase goods and services without face-to-face contact with the trader.
In particular, traders are required to provide contact details, and shoppers can cancel a purchase provided they do so within seven working days of receiving the goods and take reasonable care of the items.
Some businesses could also do more to address consumer concerns about privacy and security, according to the study.
John Fingleton, OFT chief executive, said: "The internet has added a welcome new dimension to competition in the economy, as well as providing convenience for shoppers and new opportunities to compare prices and find new products.
"However, if online shopping is to continue to flourish, the awareness and the protection of consumer rights need to improve.
"The OFT is committed to working with businesses, consumer groups and other bodies to make sure that consumers can shop with confidence online."
The OFT vowed to work with consumer groups, businesses and other public bodies to:
- Ensure that businesses have easy access to clear information and advice about selling online
- Advise shoppers how to protect themselves from security and privacy threats
- Make sure businesses address shoppers' concerns in terms of avoiding the most frequent problems by providing contact details and a secure environment
- Improve compliance and enforcement to make the internet a safer environment for buying and selling
- Build consumer confidence in internet shopping