Supplier competition on subscription-based platforms in the presence of recommender systems

47 Pages Posted: 27 Apr 2023 Last revised: 3 Jan 2024

See all articles by Jacopo Castellini

Jacopo Castellini

Independent

Amelia Fletcher

Centre for Competition Policy and Norwich Business School, UEA

Peter L. Ormosi

Norwich Business School; University of East Anglia (UEA) - Centre for Competition Policy; Compass Lexecon

Rahul Savani

Dept. of Computer Science, University of Liverpool

Date Written: April 24, 2023

Abstract

Subscription-based platforms offer consumers access to a large selection of content at a fixed subscription fee. Recommender systems (RS) can help consumers by reducing the size of this choice set by predicting consumers' preferences. However, because the prediction is based on limited information on the consumers and sometimes even on the content, the recommendations are susceptible to biases, a phenomenon widely evidenced in the computer science literature. Intuitively, if these biases systematically favour certain suppliers over others, this could impact competition between suppliers. To study this intuition, we introduce a simple framework of a platform that sells to consumers with quasi-linear utility functions via a recommender system. We find that RS biases lead to more concentrated markets and increased entry barriers even when the platform is not self-preferencing their own products, and users are rational. Limited-attention users can reduce the market concentrating impact of RS biases and harm top-selling products, but the platform can counteract this effect by a choice architecture that gives more prominence to popular items. Self-preferencing does not further increase concentration but it ensures that the winners are the products preferred by the platform. Although encouraging more exploration can reduce these market consolidating effects, we show that they also reduce recommendation relevance in the short-run.

Keywords: recommender systems, market concentration, recommendation system biases, subscription-based platforms

Suggested Citation

Castellini, Jacopo and Fletcher, Amelia and Ormosi, Peter L. and Ormosi, Peter L. and Savani, Rahul, Supplier competition on subscription-based platforms in the presence of recommender systems (April 24, 2023). Available at SSRN: https://ssrn.com/abstract=4428125 or http://dx.doi.org/10.2139/ssrn.4428125

Jacopo Castellini

Independent

Amelia Fletcher

Centre for Competition Policy and Norwich Business School, UEA ( email )

Norwich
United Kingdom

HOME PAGE: http://https://people.uea.ac.uk/amelia_fletcher

Peter L. Ormosi (Contact Author)

Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Compass Lexecon ( email )

United States

Rahul Savani

Dept. of Computer Science, University of Liverpool ( email )

Department of Computer Science
Brownlow Hill
Liverpool, L69 3BX
Great Britain

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