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Biased Recommendations and Differentially Informed Consumers

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  • Martin Peitz

  • Anton Sobolev

Abstract

We consider a monopolist selling an experience good to differentially informed consumers: some consumers are uncertain about their tastes, whereas other consumers are perfectly informed. The fully informed monopolist sets a uniform price and can make personalized product recommendations. We characterize conditions under which the monopolist biases its recommendations – that is, some consumers with match values lower than the marginal cost follow the recommendation to buy the product or some consumers with match values higher than the marginal cost follow the recommendation not to buy the product.

Suggested Citation

  • Martin Peitz & Anton Sobolev, 2024. "Biased Recommendations and Differentially Informed Consumers," CRC TR 224 Discussion Paper Series crctr224_2024_554, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_554
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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