Search , Product Recommendations , and Sales Concentration ∗ Andres Hervas - Drane

نویسندگان

  • Andres Hervas-Drane
  • Ramon Casadesus-Masanell
چکیده

Personalization mechanisms such as recommender systems play an important role in online retail, and recent empirical contributions nd that they reduce the concentration of sales and increase sales volume within product assortments. But the underlying drivers of these e ects are not yet well understood. I present a model to explain the role of product recommendations on consumers' product discovery process and their implications for the rm. Consumers face a search problem within an assortment of horizontally di erentiated products supplied by a monopolist, and may search for a product match by drawing products from the assortment or by seeking product recommendations from other consumers. I analyze the underlying consumer interactions that lead to the emergence of word of mouth, provide a rationale for the rm's adoption of personalization mechanisms such as recommender systems which generate personalized recommendations, and evaluate the impact on sales concentration, sales volume, rm prices, and rm pro ts. The model explains how personalization mechanisms contribute to lower the concentration of sales and is well suited for experience good markets such as music, cinema, literature and video game entertainment.

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تاریخ انتشار 2012