Artificial Shoppers and Attention Competition

Xiaomeng Guo, Fasheng Xu, Xiaoli Zhang

We study how AI shopping interfaces affect price competition, platform profit, and consumer welfare. A platform hosts two of three products of different quality. Without AI, consumers compare the hosted pair under salience distortion and overweight whichever attribute, price or quality, stands out. Under assistance, an AI assistant recommends the two products with the highest true utility, leaving consumers to make the same distorted comparison. Under delegation, an AI agent selects the best product, subject to purchase approval. Both modes access all products and know consumers' preferences; firms price strategically. First, assistance can soften competition despite expanded product access. The middle-quality firm may forgo low-valuation consumers because attracting them requires cutting the price paid by higher-valuation consumers as well. Relative to no AI with the same assortment, assistance lowers both hosted prices under the high- and low-quality pair but can raise both under the high- and middle-quality pair. Second, we identify an alignment paradox: some consumers can become worse off than without AI even though their best option remains recommended and becomes cheaper.…