The Price of Discovering Your Needs Online

Thanks to new digital technologies, web users are continuously targeted by offers that potentially fit their interests even if they are not actively looking for a product. Does this matching always promote transactions with high social value? We consider a model in which web users with state-contingent preferences are targeted by relevant banners. We characterize the optimal strategy of a seller who, in addition to the price of the offered good, designs a banner. We show that, in equilibrium, there is a positive relationship between the price of the offered good and the accuracy of the banner sent to users. Then, we consider the strategic decision of a Platform that attracts sellers because of its targeting abilities and we underline that a reduction in seller's costs may translate into less informative banners and lower prices, fueling purchases of goods that rational individuals may regret due to the persuasive nature of banners