Recommendations and Cross-selling: Pricing Strategies when Personalizing Firms Cross-sell
Abhijeet Ghoshal, Vijay S. Mookerjee, Sumit Sarkar
Journal of Management Information Systems · 2021 · Volume 38 · Issue 2
DOI: 10.1080/07421222.2021.1912930
Abstract
Recommender systems enable firms to target customers with products and services that better match their needs, as well as cross-sell products and services. Considering these factors in markets with monopoly and duopoly, we investigate (i) How do pricing strategies differ when firms cross-sell versus when they do not cross-sell, and (ii) How do these pricing strategies change when a firm improves its recommender system? We find that cross-selling can enable a monopolist to subsidize its price for the focal products, while maximizing its profit. In a duopoly, the price set by the firm with the inferior system (low-type firm) is always lower when the firms cross-sell than when the firms do not cross-sell; however, that does not necessarily hold for the high-type firm. When the high-type firm improves its recommender system, the low-type firm may decrease its price when firms cross-sell, which does not happen when firms do not cross-sell.
Keywords
Recommender systems, personalization, duopoly, online pricing, online cross-selling, game theory, online targeting
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