The Price of Discovering Your Needs Online

Quaderni - Working Paper DSE N° 1116

33 Pages Posted: 23 Jan 2018

See all articles by Elias Carroni

Elias Carroni

University of Bologna - Department of Economics

Luca Ferrari

University of Corsica

Simone Righi

Department of Computer Science; University College London - Financial Computing and Analytics Group, Department of Computer Science

Date Written: January 15, 2018

Abstract

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

Suggested Citation

Carroni, Elias and Ferrari, Luca and Righi, Simone, The Price of Discovering Your Needs Online (January 15, 2018). Quaderni - Working Paper DSE N° 1116. Available at SSRN: https://ssrn.com/abstract=3102398 or http://dx.doi.org/10.2139/ssrn.3102398

Elias Carroni (Contact Author)

University of Bologna - Department of Economics ( email )

Bologna
Italy

HOME PAGE: http://https://sites.google.com/site/eliascarroninuoro/

Luca Ferrari

University of Corsica

Corte, Corsica
France

HOME PAGE: http://https://www.universita.corsica/en/

Simone Righi

Department of Computer Science ( email )

66-72 Gower Street
London, London WC1E 6EA
Great Britain

HOME PAGE: http://https://sites.google.com/view/simone-righi/

University College London - Financial Computing and Analytics Group, Department of Computer Science ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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