How Do Recommender Systems Affect Sales Diversity? A Cross-Category Investigation via Randomized Field Experiment

Forthcoming at Information Systems Research

44 Pages Posted: 7 Oct 2016 Last revised: 23 Jun 2018

Dokyun Lee

Carnegie Mellon University - David A. Tepper School of Business

Kartik Hosanagar

University of Pennsylvania - Operations & Information Management Department

Date Written: June 1, 2017

Abstract

We investigate the impact of collaborative filtering recommender algorithms (e.g., Amazon’s “Customers who bought this item also bought”) commonly used in e-commerce on sales diversity. We use data from a randomized field experiment run on the website of a top retailer in North America across 82,290 products and 1,138,238 users. We report four main findings. First, we demonstrate and quantify across a wide range of product categories that the use of traditional collaborative filters (or CFs) is associated with a decrease in sales diversity relative to a world without product recommendations. Furthermore, the design of the CF matters. CFs based on purchase data are associated with a greater effect size than those based on product views. Second, the decrease in aggregate sales diversity may not always be accompanied by a corresponding decrease in individual-level consumption diversity. In fact, it is even possible for individual consumption diversity to increase while aggregate sales diversity decreases. Third, co-purchase network analysis shows that while recommenders can help individuals explore new products, similar users still end up exploring the same kinds of products, resulting in concentration bias at the aggregate level. Fourth and finally, there is a difference between absolute and relative impact on niche items. Specifically, absolute sales and views for niche items in fact increase, but their gains are smaller compared to the gains in views and sales for popular items. Thus, while niche items gain in absolute terms, they lose out in terms of market share. We discuss economic impact and managerial implications.

Keywords: E-Commerce, Personalization, Recommender systems, Sales volume, Sales diversity, Consumer purchase behavior, Collaborative filtering, Gini coefficient

Suggested Citation

Lee, Dokyun and Hosanagar, Kartik, How Do Recommender Systems Affect Sales Diversity? A Cross-Category Investigation via Randomized Field Experiment (June 1, 2017). Forthcoming at Information Systems Research . Available at SSRN: https://ssrn.com/abstract=2603361 or http://dx.doi.org/10.2139/ssrn.2603361

Dokyun Lee (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Kartik Hosanagar

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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