The Impact of Intelligent Agents on Electronic Markets: Customization, Preference Revelation and Pricing.

53 Pages Posted: 13 Oct 2008

See all articles by Ravi Aron

Ravi Aron

University of Pennsylvania

Arun Sundararajan

NYU Stern School of Business; New York University (NYU) - Center for Data Science

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business

Date Written: March 2000

Abstract

Apart from reducing buyer search costs, web-based commerce has also enabled the use ofintelligent agent technologies that reduce seller search costs by targeting buyers, customizing,and pricing products in real-time. Our model of an electronic market with customizable productsanalyzes the pricing, profitability and welfare implications of these agent-based technologiesthat price dynamically, based on product preference and demographic information revealed byconsumers. We find that in making the trade-off between better prices and better customization,consumers invariably choose less-than-ideal products. Furthermore, this trade-off impactsbuyers on the higher end of the market more, and causes a transfer of consumer surplus towardsbuyers with a lower willingness to pay. As buyers adjust their product choices in responseto better demand agent technologies, sellers may experience reduced revenues, since the gainsfrom better buyer information are countered by the lowering of the total value created fromthe transactions. We study the strategic and welfare implications of these findings, and discussmanagerial and technology development guidelines.

Suggested Citation

Aron, Ravi and Sundararajan, Arun and Viswanathan, Siva, The Impact of Intelligent Agents on Electronic Markets: Customization, Preference Revelation and Pricing. (March 2000). NYU Working Paper No. 2451/14149, Available at SSRN: https://ssrn.com/abstract=1282994

Ravi Aron

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Arun Sundararajan

NYU Stern School of Business ( email )

44 West 4th Street, KMC 8-90
New York, NY 10012
United States

HOME PAGE: http://digitalarun.ai/

New York University (NYU) - Center for Data Science ( email )

726 Broadway
7th Floor
New York, NY 10003
United States

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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