Internet Advertising, Game Theory and Consumer Welfare

Abstract

The aim of this paper is to consider the implications of Internet advertising, for prospective consumer welfare gains/losses. The implications of imperfect information among buyers are discussed to highlight the role of intermediaries and search agents in enhancing consumer welfare in a world of complex products and uncertainty. The argument demonstrates that despite possessing welfare enhancing potential the retailing of complex products on the Internet increases the scope for price discrimination among sellers. Hence, buyers may pay different prices for the same product/services. The paper shows how “agents” may restrict this type of market failure if they possess the ability to search all databases. That the Internet intrinsically exhibits welfare enhancing and reducing characteristic a game model is develop to show how entry of new sellers may proceed or be checked by incumbents.