Sales Policies for a Virtual Assistant

TL;DR

This paper analyzes the pricing and selling strategies of a voice-based virtual assistant, examining how information asymmetry and consumer patience influence outcomes and comparing its effectiveness to traditional web interfaces.

Contribution

It develops equilibrium models for VA sales, introduces efficient algorithms, and compares VA performance to web interfaces, highlighting the impact of private information and consumer patience.

Findings

Monotone rankings are optimal for highly patient or impatient consumers.

Prices of high-value products are lower than low-value ones under exponential valuation distributions.

Web interfaces generally yield higher seller profits than VAs due to greater commitment power.

Abstract

We study the implications of selling through a voice-based virtual assistant (VA). The seller has a set of products available and the VA decides which product to offer and at what price, seeking to maximize its revenue, consumer- or total-surplus. The consumer is impatient and rational, seeking to maximize her expected utility given the information available to her. The VA selects products based on the consumer's request and other information available to it and then presents them sequentially. Once a product is presented and priced, the consumer evaluates it and decides whether to make a purchase. The consumer's valuation of each product comprises a pre-evaluation value, which is common knowledge, and a post-evaluation component which is private to the consumer. We solve for the equilibria and develop efficient algorithms for implementing the solution. We examine the effects of information asymmetry on the outcomes and study how incentive misalignment depends on the distribution of private valuations. We find that monotone rankings are optimal in the cases of a highly patient or impatient consumer and provide a good approximation for other levels of patience. The relationship between products' expected valuations and prices depends on the consumer's patience level and is monotone increasing (decreasing) when the consumer is highly impatient (patient). Also, the seller's share of total surplus decreases in the amount of private information. We compare the VA to a traditional web-based interface, where multiple products are presented simultaneously on each page. We find that within a page, the higher-value products are priced lower than the lower-value products when the private valuations are exponentially distributed. Finally, the web-based interface generally achieves higher profits for the seller than a VA due to the greater commitment power inherent in its presentation.