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Optimal Product Placement

Author

Listed:
  • Chia-Ling Hsu

    (Southwestern University of Finance and Economics)

  • Rafael Matta

    (University of Amsterdam)

  • Sergey V. Popov

    (Cardiff University)

  • Takeharu Sogo

    (Osaka University of Economics)

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.

Suggested Citation

  • Chia-Ling Hsu & Rafael Matta & Sergey V. Popov & Takeharu Sogo, 2017. "Optimal Product Placement," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(1), pages 127-145, August.
    • Handle: RePEc:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-017-9575-y
    DOI: 10.1007/s11151-017-9575-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Imperfect monopolistic competition; Internet trade intermediation; Menu choice; Search costs; Vertical differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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