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Intelligent Agents in Electronic Markets for Information Goods

Ravi Aron, Arun Sundararajan and Siva Viswanathan

Forthcoming, Decision Support Systems
Last revised: November 2004

Abstract:   Electronic commerce has enabled the use of intelligent agent technologies that can evaluate buyers, customize, 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, sellers experience reduced revenues, since the gains from better buyer information are countered 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.

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