The Price of Discovering Your Needs Online
Quaderni - Working Paper DSE N° 1116
33 Pages Posted: 23 Jan 2018
Date Written: January 15, 2018
Thanks to new digital technologies, web users are continuously targeted by offers that potentially fit their interests even if they are not actively looking for a product. Does this matching always promote transactions with high social value? We consider a model in which web users with state-contingent preferences are targeted by relevant banners. We characterize the optimal strategy of a seller who, in addition to the price of the offered good, designs a banner. We show that, in equilibrium, there is a positive relationship between the price of the offered good and the accuracy of the banner sent to users. Then, we consider the strategic decision of a Platform that attracts sellers because of its targeting abilities and we underline that a reduction in seller's costs may translate into less informative banners and lower prices, fueling purchases of goods that rational individuals may regret due to the persuasive nature of banners.
Keywords: Bayesian Persuasion, Targeting, Platforms
JEL Classification: D80, D82, D83, L10, M37
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