Inducing Exploration in Service Platforms

24 Pages Posted: 7 Jun 2018

See all articles by Kostas Bimpikis

Kostas Bimpikis

Stanford Graduate School of Business

Yiangos Papanastasiou

University of California, Berkeley - Haas School of Business

Date Written: May 22, 2018

Abstract

Crowd-sourced content in the form of online product reviews or recommendations is an integral feature of most Internet-based service platforms and marketplaces, including Yelp, TripAdvisor, Netflix, and Amazon. Customers may find such information useful when deciding between potential alternatives; at the same time, the process of generating such content is mainly driven by the customers’ decisions themselves. In other words, the service platform or marketplace “explores” the set of available options through its customers’ decisions, while they “exploit” the information they obtain from the platform about past experiences to determine whether and what to purchase. Unlike the extensive work on the trade-off between exploration and exploitation in the context of multi-armed bandits, the canonical framework we discuss in this chapter involves a principal that explores a set of options through the actions of self-interested agents. In this framework, the incentives of the principal and the agents towards exploration are misaligned, but the former can potentially incentivize the actions of the latter by appropriately designing a payment scheme or an information provision policy.

Suggested Citation

Bimpikis, Kostas and Papanastasiou, Yiangos, Inducing Exploration in Service Platforms (May 22, 2018). Stanford University Graduate School of Business Research Paper No. 18-25. Available at SSRN: https://ssrn.com/abstract=3183373 or http://dx.doi.org/10.2139/ssrn.3183373

Kostas Bimpikis

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Yiangos Papanastasiou (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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