Recommenders’ Originals: The Welfare Effects of the Dual Role of Platforms as Producers and Recommender Systems

59 Pages Posted: 24 Sep 2021

See all articles by Guy Aridor

Guy Aridor

Columbia University; Columbia University, Graduate School of Arts and Sciences, Department of Economics

Duarte Gonçalves

Columbia University; University College London - Department of Economics

Date Written: August 12, 2021

Abstract

We study a model of strategic interaction between producers and a monopolist platform that employs a recommendation system. We characterize the consumer welfare implications of the platform’s entry into the production market. Upon entry, the platform biases recommendations to steer consumers towards its own goods, which leads to equilibrium investment adjustments by the producers and lower consumer welfare when the platform’s market size is large. Furthermore, we find that a policy separating recommendation and production or imposing unbiased recommendations is not always welfare improving. Our results highlight the ability of platforms to foreclose competition through the use of biased recommender systems.

Keywords: Recommender System; Biased Intermediation; Upstream Entry; Bayesian Persuasion.

JEL Classification: L11; L42; D83; L81

Suggested Citation

Aridor, Guy and Gonçalves, Duarte and Gonçalves, Duarte, Recommenders’ Originals: The Welfare Effects of the Dual Role of Platforms as Producers and Recommender Systems (August 12, 2021). Available at SSRN: https://ssrn.com/abstract=3928005 or http://dx.doi.org/10.2139/ssrn.3928005

Guy Aridor (Contact Author)

Columbia University ( email )

420 West 118th St.
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Columbia University, Graduate School of Arts and Sciences, Department of Economics

420 W. 118th Street
New York, NY 10027
United States

Duarte Gonçalves

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

University College London - Department of Economics ( email )

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London, WC1H 0AX
United Kingdom

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