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The Price of Discovering Your Needs Online

Elias Carroni (), L. Ferrari and Simone Righi ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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.

JEL-codes: D80 D82 D83 L10 M37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ict, nep-mic, nep-mkt and nep-pay
Date: 2018-01
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