Buyer-Optimal Algorithmic Consumption

Shota Ichihashi and Alex Smolin

No 18476, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze a bilateral trade model in which the buyer's value for the product and the seller's costs are uncertain, the seller chooses the product price, and the product is recommended by an algorithm based on its value and price. We characterize an algorithm that maximizes the buyer's expected payoff and show that the optimal algorithm underrecommends the product at high prices and overrecommends at low prices. Higher algorithm precision increases the maximal equilibrium price and may increase prices across all of the seller's costs, whereas informing the seller about the buyer's value results in a mean-preserving spread of equilibrium prices and a mean-preserving contraction of the buyer's payoff.

Keywords: Algorithmic; consumption (search for similar items in EconPapers)
Date: 2023-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP18476 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Buyer-Optimal Algorithmic Consumption (2024)
Working Paper: Buyer-Optimal Algorithmic Consumption (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:18476

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP18476

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().