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Endorsements and Referrals: Product Recommendations in Bilateral Trade

Author

Listed:
  • Peter Achim
  • Bojia Li
  • Lily Ling Yang

Abstract

This paper examines how a monopoly seller strategically employs pricing strategies and incentive mechanisms to influence consumer learning in the presence of a third-party information provider. Without direct payments, the seller influences consumer learning indirectly through distinct pricing strategies, which either deter or induce information acquisition. With direct payments, the seller can influence recommendations directly. "Endorsements", which tie payments to recommendations, remove informativeness and unambiguously harm the buyer. In contrast, "referrals", which tie payments to sales, can enhance consumer surplus and can even lead to Pareto improvements.

Suggested Citation

  • Peter Achim & Bojia Li & Lily Ling Yang, 2025. "Endorsements and Referrals: Product Recommendations in Bilateral Trade," CRC TR 224 Discussion Paper Series crctr224_2025_657, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_657
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp657
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumer learning; Monopoly pricing; Third-party information provision;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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