Efficient Recommender Systems

Dirk Bergemann and Deran Ozmen
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Deran Ozmen: Yale University

No 1568, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: 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 purchased by a larger group of people than others. The large group consists of customers with flexible tastes.

Keywords: Recommender system; Collaborative filtering; Add-ons; Pricing; Information externality (search for similar items in EconPapers)
JEL-codes: D42 D83 D85 (search for similar items in EconPapers)
Pages: 4 pages
Date: 2006-06
New Economics Papers: this item is included in nep-mic
Note: 1196.
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Published in Proceedings of the 8th IEEE International Conference on E-Commerce Technology and the 3rd IEEE International Conference on Enterprise Computing, and E-Services

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