Product Ranking on Online Platforms

Mahsa Derakhshan (), Negin Golrezaei (), Vahideh Manshadi () and Vahab Mirrokni ()
Additional contact information
Mahsa Derakhshan: University of Maryland, Department of Computer Science, College Park, Maryland 20742
Negin Golrezaei: MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142
Vahideh Manshadi: Yale School of Management, Yale University, New Haven, Connecticut 06511
Vahab Mirrokni: Google Research, New York, New York 10011

Management Science, 2022, vol. 68, issue 6, 4024-4041

Abstract: On online platforms, consumers face an abundance of options that are displayed in the form of a position ranking. Only products placed in the first few positions are readily accessible to the consumer, and she needs to exert effort to access more options. For such platforms, we develop a two-stage sequential search model where, in the first stage, the consumer sequentially screens positions to observe the preference weight of the products placed in them and forms a consideration set. In the second stage, she observes the additional idiosyncratic utility that she can derive from each product and chooses the highest-utility product within her consideration set. For this model, we first characterize the optimal sequential search policy of a welfare-maximizing consumer. We then study how platforms with different objectives should rank products. We focus on two objectives: (i) maximizing the platform’s market share and (ii) maximizing the consumer’s welfare. Somewhat surprisingly, we show that ranking products in decreasing order of their preference weights does not necessarily maximize market share or consumer welfare. Such a ranking may shorten the consumer’s consideration set due to the externality effect of high-positioned products on low-positioned ones, leading to insufficient screening. We then show that both problems—maximizing market share and maximizing consumer welfare—are NP-complete. We develop novel near-optimal polynomial-time ranking algorithms for each objective. Further, we show that, even though ranking products in decreasing order of their preference weights is suboptimal, such a ranking enjoys strong performance guarantees for both objectives. We complement our theoretical developments with numerical studies using synthetic data, in which we show (1) that heuristic versions of our algorithms that do not rely on model primitives perform well and (2) that our model can be effectively estimated using a maximum likelihood estimator.

Keywords: two-stage consumer search; product ranking; search costs; online platforms (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:6:p:4024-4041

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