Inducing Customers to Try New Goods

Review of Industrial Organization, 44(2), 131--146, 2014

Posted: 6 Jan 2019

See all articles by Alessandro Acquisti

Alessandro Acquisti

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: 2014

Abstract

In recent years, progresses in data mining and business analytics have fostered the advent of recommender systems, behavioral advertising, and other ways of using consumer data to personalize offers and products. We investigate the incentives for sellers to invest in systems that allow the tracking of consumers and then to truthfully report whether potential buyers will enjoy yet untried products. We find that there are two types of equilibria: For some parameter values, sellers will target all potential buyers, hence their targeted ads or purchase recommendations provide no benefit to the consumer. But for other values, ads and recommendations will be accurate. In particular, the incentive for the seller to provide accurate ads and recommendations will be inversely related to the difference between the cost of producing the good and its average market evaluation.

Keywords: Customers, Recommendations, Consumer advertising, Merchants, Customer satisfaction, Consumer information, Consumer behavior, Consumer goods, Data mining

Suggested Citation

Acquisti, Alessandro, Inducing Customers to Try New Goods (2014). Review of Industrial Organization, 44(2), 131--146, 2014, Available at SSRN: https://ssrn.com/abstract=3305318

Alessandro Acquisti (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States
412-268-9853 (Phone)
412-268-5339 (Fax)

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