Recommendation Service as a Coordination Device among Peers
34 Pages Posted: 17 Apr 2020 Last revised: 4 Sep 2020
Date Written: March 20, 2020
In the classic beauty contest story of Morris and Shin (2002), the coordination game is set exogenously in the payoff function of agents. Our paper studies the existence of endogenous coordination in a context with one seller and many buyers. Due to imperfect information, the seller has an incentive to take a manipulative action to bias the product's quality. We show that a direct relationship between the seller and buyers does not induce them to coordinate to understand the product's value better. Coordination may occur if and only if a platform's intermediation is in place, as its recommendation to buyers unravels the beneficial effects of the others' documentation efforts. The platform's service works as a coordination device among peers. We finally model the combination of private and public signals with a platform's recommendation. The platform can have a preference for a peer-review system or an individual learning strategy, depending on the seller's ability to manipulate.
Keywords: Coordination Games, Recommendation, Platform, Manipulation, Bayesian Learning, Peer-Review.
JEL Classification: D42, D82, D83, L13, M37
Suggested Citation: Suggested Citation