Paul Belleflamme (CORE)

will give a presentation on

Manipulating Perceived Product Differentiation (joint with Fabrizio Ciotti).

Abstract:

A digital platform operates a marketplace that two competing firms use to offer a product to consumers. Consumers perceive the products of the two firms as horizontally differentiated. The platform can manipulate the perceived product differentiation by making one product relatively more accessible than the other for all consumers. We show that this manipulation creates a net value for the firms, insofar as the profit gain of the advantaged firm is larger than the profit loss of the disadvantaged one. We compare two monetisation strategies for the platform. In exchange for the advantage conferred by the manipulation of consumers’ perceptions, the platform asks firms to pay either a lump-sum fee or a per-unit royalty. We show that the platform finds the royalty more profitable. Under this scheme, the manipulation is neutral for both firms but makes the consumers worse off. In contrast, compared to the absence of manipulation, the lump-sum scheme would make the advantaged firm indifferent, the disadvantaged firm worse off, and consumers better off.