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Inflated Recommendations

Author

Listed:
  • Martin Peitz
  • Anton Sobolev

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.

Suggested Citation

  • Martin Peitz & Anton Sobolev, 2026. "Inflated Recommendations," RAND Journal of Economics, RAND Corporation, vol. 57(2), pages 368-385, June.
    • Handle: RePEc:bla:randje:v:57:y:2026:i:2:p:368-385
    DOI: 10.1111/1756-2171.70036
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