Artificial Intelligence, Algorithmic Recommendations and Competition

33 Pages Posted: 22 May 2023 Last revised: 30 Apr 2024

See all articles by Emilio Calvano

Emilio Calvano

University of Bologna - Department of Economics; University of Toulouse 1 - Department of Economics; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Vincenzo Denicolò

Università di Bologna

Sergio Pastorello

University of Bologna - Department of Economics

Date Written: May 14, 2023

Abstract

We present a methodology for analyzing the impact of algorithmic recommendations on product market competition, addressing concerns that have been raised in both academic and policy circles regarding their potential anti-competitive effects. Our analysis demonstrates that recommender systems (RSs) lead to higher market concentration and prices compared to a scenario where algorithmic recommendations are unavailable and consumers rely solely on individual search. However, RSs also improve the match between products and consumers and reduce the need for expensive search processes. By accounting for both the positive and negative effects, we find that RSs are likely to increase consumer surplus for reasonable parameter values. However, increasing the amount of data available to the algorithms may lead to a reduction in consumer surplus. We also examine the potential for manipulation of recommendations and its impact on competition, finding that such manipulation is more likely to represent an exclusionary abuse than an exploitative one.

Keywords: Artificial Intelligence, Recommender Systems, Search, Product Market Competition, Manipulation, Biased Recommendations, Niche Products.

JEL Classification: L41, L13, D43, D83

Suggested Citation

Calvano, Emilio and Calzolari, Giacomo and Denicolò, Vincenzo and Pastorello, Sergio, Artificial Intelligence, Algorithmic Recommendations and Competition (May 14, 2023). Available at SSRN: https://ssrn.com/abstract=4448010 or http://dx.doi.org/10.2139/ssrn.4448010

Emilio Calvano

University of Bologna - Department of Economics ( email )

Bologna
Italy

University of Toulouse 1 - Department of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

Villa la Fonte
Via delle fontanelle 18
San Domenico di Fiesole, Florence 50014
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bologna ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Vincenzo Denicolò

Università di Bologna ( email )

Via Zamboni, 33
Bologna, 40126
Italy

Sergio Pastorello

University of Bologna - Department of Economics ( email )

Via Saragozza, 8
Bologna, 40125
Italy
+39 051 2098144 (Phone)
+39 051 2098040 (Fax)

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