New product recommendation in online platforms as marketplaces or resellers

New product recommendation (NPR), which enhances the visibility of new products and improves consumers’ shopping experience by offering personalized recommendations, has been widely adopted by e-commerce platforms such as Amazon and JD.com. However, NPR also leads to challenges, including the hasty introduction of new products and the intensified competition between new and existing products, making its impact on the platform an open question. We formulate a game-theoretic model to analyze the introduction of a new product (i.e., of higher- or lower-quality, and low-awareness) and competition between vertically differentiated manufacturers under NPR-adoption, with a particular focus on the platform’s role as marketplace or reseller. We show that NPR changes the nature of competition between manufacturers by altering consumer segmentation, i.e., market cannibalization effect and market expansion effect, which dramatically affect the platform’s profit. In particular, NPR generally broadens the scope of new product introductions for both channel structures, although the specific conditions for introduction differ. Specifically, marketplace platforms rely on precise relative quality thresholds for introduction, while reseller platforms ensure the introduction of all higher-quality products once NPR is adopted due to upstream competition. However, NPR increases the profitability of new products while bringing unexpected competition, which may backfire when new products’ quality is relatively low for marketplace platforms. Further, for the benefits of NPR adoption, we find that reseller platforms gain more when new-product quality is low or consumer awareness is high, whereas marketplace platforms benefit more from high-quality new products and low consumer awareness. While showing robustness through several extensions, these findings advocate that e-commerce platforms should implement NPR with caution.