Optimal Product Placement
C.-L. Hsu
, , S. V. Popov
,
2017, Review of Industrial Organization, 51(1), pp.127-145
Résumé
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.