Speaker: Heski Bar-Isaac  (University of Toronto)

Location: University of Mannheim, Room S031

Time: 1:45 p.m.

Abstract: We study how delegation of consumer search to AI agents changes product design and welfare. Firms choose prices and how broadly to target consumers, who choose between direct search and a cheaper but imprecise agent. More selective consumers inspect more firms per purchase and therefore have disproportionate influence on firms’ design incentives. When agents search more selectively than consumers would unaided, improvements induce nichier designs. Convenience can instead recruit consumers into less selective search and reverse the design response. Firms respond to marginal visitors, while the planner values the average buyer. This difference allows cheaper or more accurate agents to lower welfare through either excessive niching or excessive broadening, despite privately optimal adoption. Adoption consequently creates an externality through product design and can be either excessive or insufficient.