Optimal Product Placement

Chia-Ling Hsu (), Rafael Matta, Sergey Popov and Takeharu Sogo
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Chia-Ling Hsu: Southwestern University of Finance and Economics

Review of Industrial Organization, 2017, vol. 51, issue 1, No 6, 127-145

Abstract: Abstract We model a market, such as an online software market, in which an intermediary connects sellers and buyers by displaying sellers’ products. With two vertically-differentiated products, an intermediary can place either: (1) one product, not necessarily the better one, on the first page, and the other hidden on the second page; or (2) both products on the first page. We show that it can be optimal for the intermediary to obfuscate a product—possibly the better one—since this weakens price competition and allows the sellers to extract a greater surplus from buyers; however, it is not socially optimal. The choice of which one to obfuscate depends on the distribution of search costs.

Keywords: Imperfect monopolistic competition; Internet trade intermediation; Menu choice; Search costs; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: D21 D43 L11 L13 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11151-017-9575-y

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