Algorithmic Collusion or Competition: the Role of Platforms' Recommender Systems

Recent academic research has extensively examined algorithmic collusion resulting from the utilization of artificial intelligence (AI)-based dynamic pricing algorithms. Nevertheless, e-commerce platforms employ recommendation algorithms to allocate exposure to various products, and this important aspect has been largely overlooked in previous studies on algorithmic collusion. Our study bridges this important gap in the literature and examines how recommendation algorithms can determine the competitive or collusive dynamics of AI-based pricing algorithms. Specifically, two commonly deployed recommendation algorithms are examined: (i) a recommender system that aims to maximize the sellers' total profit (profit-based recommender system) and (ii) a recommender system that aims to maximize the demand for products sold on the platform (demand-based recommender system). We construct a repeated game framework that incorporates both pricing algorithms adopted by sellers and the platform's recommender system. Subsequently, we conduct experiments to observe price dynamics and ascertain the final equilibrium. Experimental results reveal that a profit-based recommender system intensifies algorithmic collusion among sellers due to its congruence with sellers' profit-maximizing objectives. Conversely, a demand-based recommender system fosters price competition among sellers and results in a lower price, owing to its misalignment with sellers' goals. Extended analyses suggest the robustness of our findings in various market scenarios. Overall, we highlight the importance of platforms' recommender systems in delineating the competitive structure of the digital marketplace, providing important insights for market participants and corresponding policymakers.Comment: 33 pages, 5 figures, 4 table

Incorporating Profit Margins into Recommender Systems: A Randomized Field Experiment of Purchasing Behavior and Consumer Trust

A number of recent studies have proposed new recommender designs that incorporate firm-centric measures (e.g., the profit margins of products) along with consumer-centric measures (e.g., relevance of recommended products). These designs seek to maximize the long-term profits from recommender deployment without compromising customer trust. However, very little is known about how consumers might respond to recommender algorithms that account for product profitability. We tested the impact of deploying a profit-based recommender on its precision and usage, as well as customer purchasing and trust, with data from an online randomized field experiment. We found that the profit-based algorithm, despite potential concerns about its negative impact on consumers, is effective in retaining consumers’ usage and purchase levels at the same rate as a content-based recommender. We also found that the profit-based algorithm generated higher profits for the firm. Further, to measure trust, we issued a post-experiment survey to participants in the experiment; we found there were no significant differences in trust across treatment. We related the survey results to the accuracy and diversity of recommendations and found that accuracy and diversity were both positively and significantly related to trust. The study has broader implications for firms using recommenders as a marketing tool, in that the approach successfully addresses the relevance-profit tradeoff in a real-world context

Show Me the Money: Dynamic Recommendations for Revenue Maximization

Recommender Systems (RS) play a vital role in applications such as e-commerce and on-demand content streaming. Research on RS has mainly focused on the customer perspective, i.e., accurate prediction of user preferences and maximization of user utilities. As a result, most existing techniques are not explicitly built for revenue maximization, the primary business goal of enterprises. In this work, we explore and exploit a novel connection between RS and the profitability of a business. As recommendations can be seen as an information channel between a business and its customers, it is interesting and important to investigate how to make strategic dynamic recommendations leading to maximum possible revenue. To this end, we propose a novel \model that takes into account a variety of factors including prices, valuations, saturation effects, and competition amongst products. Under this model, we study the problem of finding revenue-maximizing recommendation strategies over a finite time horizon. We show that this problem is NP-hard, but approximation guarantees can be obtained for a slightly relaxed version, by establishing an elegant connection to matroid theory. Given the prohibitively high complexity of the approximation algorithm, we also design intelligent heuristics for the original problem. Finally, we conduct extensive experiments on two real and synthetic datasets and demonstrate the efficiency, scalability, and effectiveness our algorithms, and that they significantly outperform several intuitive baselines.Comment: Conference version published in PVLDB 7(14). To be presented in the VLDB Conference 2015, in Hawaii. This version gives a detailed submodularity proo

Psychological elements explaining the consumer's adoption and use of a website recommendation system: A theoretical framework proposal

The purpose of this paper is to understand, with an emphasis on the psychological perspective of the research problem, the consumer's adoption and use of a certain web site recommendation system as well as the main psychological outcomes involved. The approach takes the form of theoretical modelling. Findings: A conceptual model is proposed and discussed. A total of 20 research propositions are theoretically analyzed and justified. Research limitations/implications: The theoretical discussion developed here is not empirically validated. This represents an opportunity for future research. Practical implications: The ideas extracted from the discussion of the conceptual model should be a help for recommendation systems designers and web site managers, so that they may be more aware, when working with such systems, of the psychological process consumers undergo when interacting with them. In this regard, numerous practical reflections and suggestions are presented

Recommendation system using the k-nearest neighbors and singular value decomposition algorithms

Nowadays, recommendation systems are used successfully to provide items (example: movies, music, books, news, images) tailored to user preferences. Amongst the approaches existing to recommend adequate content, we use the collaborative filtering approach of finding the information that satisfies the user by using the reviews of other users. These reviews are stored in matrices that their sizes increase exponentially to predict whether an item is relevant or not. The evaluation shows that these systems provide unsatisfactory recommendations because of what we call the cold start factor. Our objective is to apply a hybrid approach to improve the quality of our recommendation system. The benefit of this approach is the fact that it does not require a new algorithm for calculating the predictions. We are going to apply two algorithms: k-nearest neighbours (KNN) and the matrix factorization algorithm of collaborative filtering which are based on the method of (singular-value-decomposition). Our combined model has a very high precision and the experiments show that our method can achieve better results

B2C E-Commerce Customer Churn Management: Churn Detection using Support Vector Machine and Personalized Retention using Hybrid Recommendations

E-Commerce industry, especially the players in Business-to-Consumer (B2C) sector is witnessing immense competition for survival - by means of trying to penetrate to the customer base of their peers and at the same time not letting their existing customers to churn. Avoiding customer attrition is critical for these firms as the cost of acquiring new customers are going high with more and more players entering into the market with huge capital investments and new penetration strategies. Identifying potential parting away customers and preventing the churn with quick retention actions is the best solution in this scenario. It is also important to understand that what the customer is trying to achieve by opting for a move out so that personalized win back strategies can be applied. E-Commerce industry always possess huge amount of customer data which include information on searches performed, transactions carried out, periodicity of purchases, reviews contributed, feedback shared, etc. for every customers they possess. Data mining and machine learning can help in analyzing this huge volume of data, understanding the customer behavior and detecting possible attrition candidates. This paper proposes a framework based on support vector machine to predict E-Commerce customer churn and a hybrid recommendation strategy to suggest personalized retention actions