Inflated recommendations

Martin Peitz and Anton Sobolev

No 17260, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Biased recommendations arise naturally in markets with heterogeneous consumers. We study a model in which a monopolist offers an experience good to a population of consumers with heterogeneous tastes and makes personalized purchase recommendations. We provide conditions under which a firm makes welfare-reducing purchase recommendations with positive probability, resulting in inflated recommendations. We extend this insight to a setting in which an intermediary makes the recommendations, whereas a seller sets the retail price. Regulatory interventions that forbid inflated recommendations may lead to higher social welfare or may backfire.

JEL-codes: D21 D42 L12 L15 M37 (search for similar items in EconPapers)
Date: 2022-04
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Related works:
Journal Article: Inflated Recommendations (2026)
Working Paper: Inflated Recommendations (2024)
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