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

Management Science, Forthcoming

42 Pages Posted: 9 Jan 2012 Last revised: 19 Jun 2014

Gal Oestreicher-Singer

Tel Aviv University - Coller School of Management

Arun Sundararajan

New York University (NYU): Stern School of Business and Center for Urban Science+Progress

Date Written: January 3, 2011

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.

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

JEL Classification: D85, L14, Z13

Suggested Citation

Oestreicher-Singer, Gal and Sundararajan, Arun, The Visible Hand? Demand Effects of Recommendation Networks in Electronic Markets (Extended Version) (January 3, 2011). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1268516 or http://dx.doi.org/10.2139/ssrn.1268516

Gal Oestreicher-Singer (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Arun Sundararajan

New York University (NYU): Stern School of Business and Center for Urban Science+Progress ( email )

44 West 4th Street, KMC 8-90
New York, NY 10012
United States

HOME PAGE: http://oz.stern.nyu.edu/

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