Algorithmic Targeting

Abstract

Abstract Chapter 3 shifts the focus from price discrimination to product targeting. The AI-powered algorithm matches different consumers with different products or different product designs. The analysis covers targeted advertising, which is one of the major examples of algorithmic decision-making in consumer markets. As with algorithmic price discrimination, the most fundamental conclusion is that algorithmic targeting is largely beneficial in S markets, where most consumers are sophisticated, but potentially harmful in U markets, where many consumers are unsophisticated (although there are also sophisticated consumers). In S markets, AI-powered algorithms facilitate better matching between products and consumers (according to the consumer’s preferences and budget constraints). In U markets, AI-powered algorithms might target inferior products to unsophisticated consumers.

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