Cooperative Cross-Channel Recommendation for an Offline Retailer and an Online Competitor

This paper investigates whether the offline retailer should cooperate with an online competitor to recommend online-exclusive products to in-store shoppers. A key finding is that the offline retailer is willing to recommend the online retailer’s exclusive products even if there is no cooperation commission. Interestingly, the recommended online retailer does not always benefit from the offline competitor’s recommendation. Because such cross-channel cooperative recommendations not only generate a positive promotion effect on the recommended exclusive product but also a negative cannibalization effect on the overlapping product which is sold by both retailers. When the price-performance ratio of the recommended product is low, the online retailer is profitable under the cooperative case. Recommendation effort is another main factor affecting the conditions under which the two competing retailers cooperate on cross-channel recommendations. The cooperation will be achieved when (1) the cost coefficient is high and the offline retailer exerts a moderate level of recommendation effort or (2) the cost coefficient is low and the offline retailer exerts more recommendation effort. This implies that optimizing recommendation mechanisms and processes to control costs is significant. The managerial insights can help practitioners and academics to further understand the impacts of recommendation systems on product sales and firm profits.