Work

Inflated Recommendations

Year: 2025

Type: article

Abstract: ABSTRACT Biased recommendations arise naturally in markets with heterogeneous consumers. We study a model in which a monopolist offers an experience good to a population of consumers with heterogeneous tastes and makes personalized purchase recommendations. We provide conditions under which a firm makes welfare‐reducing purchase recommendations with positive probability, resulting in inflated recommendations. We extend this insight to a setting in which an intermediary makes the recommendations, whereas a seller sets the retail price. Regulatory interventions that forbid inflated recommendations may lead to higher social welfare or may backfire.

Source: The RAND Journal of Economics

DOI: 10.1111/1756-2171.70036

Authors: Martin Peitz, Anton Sobolev

Institutions: University of Mannheim, Centre for Economic Policy Research

Language: English

Topic: Consumer Market Behavior and Pricing

Subfield: Marketing

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,400

Funder: Deutsche Forschungsgemeinschaft