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The Visible Hand? Demand Effects of Recommendation Networks in Electronic Markets

Author

Listed:
  • Gal Oestreicher-Singer

    (Recanati Business School, Tel Aviv University, Tel Aviv 69978, Israel)

  • Arun Sundararajan

    (Stern School of Business, New York University, New York, New York 10012)

Abstract

Online commercial interactions have increased dramatically over the last decade, leading to the emergence of networks that link the electronic commerce landing pages of related products to one another. Our paper conjectures that the explicit visibility of such "product networks"can alter demand spillovers across their constituent items. We test this conjecture empirically using data about the copurchase networks and demand levels associated with more than 250,000 interconnected books offered on Amazon.com over the period of one year while controlling for alternative explanations of demand correlation using a variety of approaches. Our findings suggest that on average the explicit visibility of a copurchase relationship can lead to up to an average threefold amplification of the influence that complementary products have on each others' demand levels. We also find that newer and more popular products "use" the attention they garner from their network position more efficiently and that diversity in the sources of spillover further amplifies the demand effects of the recommendation network. Our paper presents new evidence quantifying the role of network position in electronic markets and highlights the power of basing (virtual) shelf position on consumer preferences that are explicitly revealed through shared purchasing patterns. This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Gal Oestreicher-Singer & Arun Sundararajan, 2012. "The Visible Hand? Demand Effects of Recommendation Networks in Electronic Markets," Management Science, INFORMS, vol. 58(11), pages 1963-1981, November.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:11:p:1963-1981
    DOI: 10.1287/mnsc.1120.1536
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