The price of discovering your needs online

Carroni E.;Ferrari L.;Righi S.

2019-01-01

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Abstract

Web users, even when not actively looking for a product, are continuously targeted by offers that potentially fit their interests. Does this kind of targeting always promote transactions with high social value? We consider a model in which a two-sided platform is visited by sellers seeking to promote their products and by users with state-contingent preferences about those products. Depending on its targeting ability, the platform could be able to target users by tailored advertising banners. We show that persuasion is stronger when targeting ability is maximal, fueling purchases that rational individuals may regret due to the persuasive nature of banners.