The impact of interactive behavior modification on equilibrium price and seller location in electronic markets

This paper investigates the impact of seller introduced inference systems designed to modify buyer behavior on an electronic market. In particular, the focus of our analysis is on real time systems that seek to infer buyer preferences and reservation prices based on buyer behavior. We show that under certain conditions, when an inference engine is introduced, the equilibrium price falls and the total surplus of the market increases. We will employ the technique of closed form equations to model these phenomena and interpret the solutions and relate the results to current trends in electronic commerce.