Robin Ng, University of Mannheim

"Competition through recommendations"

Abstract

This paper examines how a two-sided platform designs its recommender system to be informative about value-for-money and how competition affects this design. More informative recommendations generate ranking and screening effects: they steer demand toward high value-for-money products, intensifying price competition between firms, which drives out lower-quality firms. Hence, more informative recommendations benefit consumers but reduce per-transaction revenue. A monopolist platform still prefers informative recommendations due to demand expansion. Competing platforms choose even more informative recommendations than a monopolist. Moreover, if entrant platforms cannot design informative systems, incumbents may strategically reduce informativeness. This illustrates how market power can explain `ensh*ttification'

Contact person: Egor Starkov