Recommenders’ originals: The welfare effects of the dual role of platforms as producers and recommender systems

Guy Aridor and Duarte Gonçalves

International Journal of Industrial Organization, 2022, vol. 83, issue C

Abstract: We study a model of strategic interaction between a producer and a platform that employs a recommendation system, following an information design approach. Upon entry into the production market, the platform biases recommendations to credibly steer consumers towards its own goods. Despite the increased upstream competition, platform entry and self-preferencing can decrease consumer welfare and result in foreclosure of the independent producer. We then consider the natural policy remedy of separating recommendation and production or imposing unbiased recommendations and find it leads to welfare gains if the platform’s revenue potential is large enough, but to significant welfare losses when it is not. The ambiguity of such a policy’s welfare implications and the dependence on the industry’s returns highlights the importance of targeted restrictions on platform self-preferencing.

Keywords: Recommender system; Biased intermediation; Self-preferencing; Upstream entry; Information design (search for similar items in EconPapers)
JEL-codes: D83 L11 L42 L81 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:83:y:2022:i:c:s0167718722000212

DOI: 10.1016/j.ijindorg.2022.102845

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