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Full-Text Articles in Social and Behavioral Sciences
Efficient Recommender Systems, Dirk Bergemann, Deran Ozmen
Efficient Recommender Systems, Dirk Bergemann, Deran Ozmen
Cowles Foundation Discussion Papers
We study the efficient allocation of buyers in the presence of recommender systems. A recommender system affects the market in two ways: (i) it creates value by reducing product uncertainty for the customers and hence (ii) its recommendations can be offered as add-ons, which generates informational externalities. We investigate the impact of these factors on the efficient allocation of buyers across different products. We find that the efficient allocation requires that the seller with the recommender system has full market share. If the recommender system is sufficiently effective in reducing uncertainty, it is optimal to have some products to be …
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Cowles Foundation Discussion Papers
We study optimal pricing in the presence of recommender systems. A recommender system affects the market in two ways: (i) it creates value by reducing product uncertainty for the customers and hence (ii) its recommendations can be offered as add-ons which generate informational externalities. The quality of the recommendation add-on is endogenously determined by sales. We investigate the impact of these factors on the optimal pricing by a seller with a recommender system against a competitive fringe without such a system. If the recommender system is sufficiently effective in reducing uncertainty, then the seller prices otherwise symmetric products differently to …