The Value of Recommendations: Online Appendix

13 Pages Posted: 22 Oct 2012

See all articles by Jeanine Miklós-Thal

Jeanine Miklós-Thal

University of Rochester - Simon Business School

Heiner Schumacher

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: October 20, 2012

Abstract

This document contains supporting materials for the following article:

Miklos-Thal, Jeanine and Heiner Schumacher (2012), "The Value of Recommendations," to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=1718474

Many markets without repeated seller-buyer relations feature third-party "monitors" that sell recommendations. We analyze the profit-maximizing recommendation policies of such monitors. In an infinitely repeated game with seller moral hazard and short-lived consumers, a monopolistic monitor with superior information about the seller's past effort decisions sells recommendations about the seller to consumers. We show that the monitor has an incentive to make its recommendations hard to predict, which in general leads to inefficient effort provision by sellers. These results hold under perfect and imperfect monitoring and in a variety of informational setting. When there are multiple competing sellers, the conflict between the monitor's profit-maximization objective and efficient effort provision is mitigated.

Keywords: Repeated Games, Moral Hazard, Imperfect Monitoring, Information Sellers

JEL Classification: C73, D83, L15

Suggested Citation

Miklós-Thal, Jeanine and Schumacher, Heiner, The Value of Recommendations: Online Appendix (October 20, 2012). Available at SSRN: https://ssrn.com/abstract=2164774 or http://dx.doi.org/10.2139/ssrn.2164774

Jeanine Miklós-Thal (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Heiner Schumacher

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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