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Intelligent agents in electronic markets for information goods: customization, preference revelation and pricing

Authors: Aron, Ravi
Sundararajan, Arun
Viswanathan, Siva
Keywords: ecommerce;digital goods;dynamic pricing;automated pricing;discrimination;mass customization;pricebot;information filtering;shopbot;software agents;price discrimination;first-degree price
Issue Date: 2005
Publisher: Decision Support Systems
Series/Report no.: CeDER-PP-2005-07
Abstract: Electronic commerce has enabled the use of intelligent agent technologies that can evaluate buyers, customize products, and price in real-time. Our model of an electronic market with customizable products analyzes the pricing, profitability and welfare implications of agent-based technologies that price dynamically based on product preference information revealed by consumers. We find that in making the trade-off between better prices and better customization, consumers invariably choose less-than-ideal products. Furthermore, this trade-off has a higher impact on buyers on the higher end of the market and causes a transfer of consumer surplus towards buyers with a lower willingness to pay. As buyers adjust their product choices in response to better demand agent technologies, seller revenues decrease since the gains from better buyer information are dominated by the lowering of the total value created from the transactions. We study the strategic and welfare implications of these findings, and discuss managerial and technology development guidelines.
Appears in Collections:CeDER Published Papers

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