Inducing Customers to Try New Goods

Inducing Customers to Try New Goods 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Inducing Customers to Try New Goods

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-013-9406-8
Publisher site
See Article on Publisher Site

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.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Nov 30, 2013

References

  • The market for evaluations
    Avery, C; Resnick, P; Zeckhauser, R
  • Contract renegotiation with time-varying valuations
    Blume, A
  • Bad reputation
    Ely, J; Valimaki, J
  • An instrumental theory of political correctness
    Morris, S
  • Reputational cheap talk
    Ottaviani, M; Sørensen, P
  • Recommender systems
    Resnick, P; Varian, H

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