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Inducing Customers to Try New Goods

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  • Alessandro Acquisti

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. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Alessandro Acquisti, 2014. "Inducing Customers to Try New Goods," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 131-146, March.
    • Handle: RePEc:kap:revind:v:44:y:2014:i:2:p:131-146
    DOI: 10.1007/s11151-013-9406-8
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    Cited by:

    1. Avi Goldfarb & Victor Tremblay, 2014. "Introduction: The Economics of Internet Advertising," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 113-114, March.
    2. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Janeway Institute Working Papers 2104, Faculty of Economics, University of Cambridge.
    3. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    4. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Cambridge Working Papers in Economics 2159, Faculty of Economics, University of Cambridge.

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