The Visible Hand? Demand Effects of Recommendation Networks in Electronic Markets (Extended Version)

Abstract:     
Online commercial interactions have increased dramatically over the last decade, leading to the emergence of networks that link the e-commerce landing pages of related products to one another. Our paper conjectures that the explicit visibility to consumers of such “product networks” can alter demand spillovers across their constituent items. We investigate this empirically using data about the co-purchase networks and demand levels associated with over 250,000 interconnected books offered on Amazon.com over the period of one year while controlling for alternative explanations of demand correlation using a variety of approaches. Our findings suggest that on average, the explicit visibility of a co-purchase relationship can lead to up to a three-fold amplification of the influence that complementary products have on each others’ demand levels. We also find that newer and more popular products "use" the attention they garner from their network position more efficiently, and that diversity in the sources of spillover further amplifies the demand effects of the network. Our paper presents new evidence quantifying the role of network position in electronic markets and highlights the power of basing virtual shelf position on consumer preferences that are revealed through shared purchasing patterns.

Number of Pages in PDF File: 42

Keywords: networks, social networks, peer effects, electronic commerce, ecommerce, recommender systems, identification, selection, influence

JEL Classification: D85, L14, Z13

Accepted Paper Series