Optimal Product Placement

Chia-Ling Hsu, Rafael Matta, Sergey V. Popov, Takeharu Sogo

Research output: Contribution to journalArticle

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Abstract

We model a market, such as an online software market, in which an intermediary connects sellers and buyers by displaying sellers' products. With two vertically-differentiated products, an intermediary can place either: (1) one product, not necessarily the better one, on the first page, and the other hidden on the second page; or (2) both products on the first page. We show that it can be optimal for the intermediary to obfuscate a product---possibly the better one---since this weakens price competition and allows the sellers to extract a greater surplus from buyers; however, it is not socially optimal. The choice of which one to obfuscate depends on the distribution of search costs.
Original languageEnglish
Number of pages19
JournalReview of Industrial Organization
Early online date22 Mar 2017
DOIs
Publication statusEarly online date - 22 Mar 2017

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Costs
Product placement
Intermediaries
Seller
Buyers
Differentiated products
Search costs
Price competition
Software
Surplus

Keywords

  • Imperfect monopolistic competition
  • Internet trade intermediation
  • Menu choice
  • Vertical differentiation
  • Search costs

Cite this

Hsu, Chia-Ling ; Matta, Rafael ; Popov, Sergey V. ; Sogo, Takeharu. / Optimal Product Placement. In: Review of Industrial Organization. 2017.
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Optimal Product Placement. / Hsu, Chia-Ling; Matta, Rafael; Popov, Sergey V.; Sogo, Takeharu.

In: Review of Industrial Organization, 22.03.2017.

Research output: Contribution to journalArticle

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N2 - We model a market, such as an online software market, in which an intermediary connects sellers and buyers by displaying sellers' products. With two vertically-differentiated products, an intermediary can place either: (1) one product, not necessarily the better one, on the first page, and the other hidden on the second page; or (2) both products on the first page. We show that it can be optimal for the intermediary to obfuscate a product---possibly the better one---since this weakens price competition and allows the sellers to extract a greater surplus from buyers; however, it is not socially optimal. The choice of which one to obfuscate depends on the distribution of search costs.

AB - We model a market, such as an online software market, in which an intermediary connects sellers and buyers by displaying sellers' products. With two vertically-differentiated products, an intermediary can place either: (1) one product, not necessarily the better one, on the first page, and the other hidden on the second page; or (2) both products on the first page. We show that it can be optimal for the intermediary to obfuscate a product---possibly the better one---since this weakens price competition and allows the sellers to extract a greater surplus from buyers; however, it is not socially optimal. The choice of which one to obfuscate depends on the distribution of search costs.

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