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This paper studies how market competition influences the algorithmic design choices of firms in the context of targeting. Firms face the general trade-off between bias and variance when choosing the design of a supervised learning algorithm in terms of model complexity or the number of predictors to accommodate. Each firm then appoints a data analyst that uses the chosen algorithm to estimate demand for multiple consumer segments, based on which, it devises a targeting policy to maximize estimated profit. We show that competition may induce firms to strategically choose simpler algorithms which involve more bias. This implies that more complex/flexible algorithms tend to have higher value for firms with greater monopoly power.

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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)