Optimal Front Page Advertising

Chia-Ling Hsu, Rafael da Matta, Sergey V. Popov

Research output: Working paper

Abstract

We consider a model of an on-line software market, where an intermediary distributes products from sellers to buyers. When products of sellers are vertically differentiated, an intermediary, earning a proportion of sales, has an incentive to hide the worse product on the second page, and only keep the better product on the front page: that weakens the competition, allowing the seller with the better product to charge a higher price. With heterogeneous visiting costs to the second page, the platform's revenue might improve, but the outcome will become socially suboptimal.
Original languageEnglish
Number of pages20
Publication statusPublished - 2013

Keywords

  • menu choice
  • imperfect monopolistic competition
  • internet trade intermediation
  • search costs
  • horizontal differentiation

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