Author(s): Chen Lyu
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Early consumption of a product often benefits later consumers by revealing quality information. Inefficiency arises, however, because early consumers do not internalize the social value of their consumption. How could a platform that intermediates information between early and late consumers mitigate such an inefficiency by designing its recommendation policy? In a model with binary product quality and general post-consumption signals, I show that the optimal design features simple threshold policies. The product should be recommended when the platform’s current belief of high quality is above a certain time-specific threshold, which varies in a U-shaped pattern over the product’s life. Characterizations of the recommendation dynamic and comparative statics about the recommendation standards are also provided. My analysis also illustrates the usefulness of a Lagrangian duality approach for a class of dynamic information design problems.
Published: 2022-12-18 12:02:55 PT
Stage: Working Paper
Fields: Microeconomics, Digital Economics
Research Group(s): Playground
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Versions: v1 (12/18/2022)