Endorsements and Referrals: Product Recommendations in Bilateral Trade

Peter Achim, Bojia Li () and Lily Ling Yang ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper examines how a monopoly seller strategically employs pricing strategies and incentive mechanisms to influence consumer learning in the presence of a third-party information provider. Without direct payments, the seller influences consumer learning indirectly through distinct pricing strategies, which either deter or induce information acquisition. With direct payments, the seller can influence recommendations directly. "Endorsements", which tie payments to recommendations, remove informativeness and unambiguously harm the buyer. In contrast, "referrals", which tie payments to sales, can enhance consumer surplus and can even lead to Pareto improvements.

Keywords: Consumer learning; Monopoly pricing; Third-party information provision (search for similar items in EconPapers)
JEL-codes: D42 D83 M31 (search for similar items in EconPapers)
Pages: 34
Date: 2025-02
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_657

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