Recommendations with Feedback

33 Pages Posted: 26 Mar 2019

See all articles by Ganesh Iyer

Ganesh Iyer

University of California, Berkeley - Marketing Group

Gustavo Manso

University of California, Berkeley - Haas School of Business

Date Written: February 26, 2019

Abstract

We investigate the strategic role of a recommender who cares about accuracy and whose recommendations influence product quality. In the presence of such feedback effects, recommendations have a self-fulling property: the recommendation agent can select any firm which will end up being the firm with the best quality. Recommendations can lead to significant inefficiencies which include: i) a lack of incentive to acquire valuable information, ii) a status quo bias, and iii) the avoidance of risky innovations. Direct monetary payments from firms may work in mitigating these inefficiencies, while competition between recommenders and monetary transfers from consumers are ineffective.

Keywords: Recommendation, Feedback, Coordination

JEL Classification: D80

Suggested Citation

Iyer, Ganesh and Manso, Gustavo, Recommendations with Feedback (February 26, 2019). Available at SSRN: https://ssrn.com/abstract=3345805 or http://dx.doi.org/10.2139/ssrn.3345805

Ganesh Iyer

University of California, Berkeley - Marketing Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

Gustavo Manso (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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