Recommendations and cross-selling: Pricing strategies when personalizing firms cross-sell
Journal of Management Information Systems, 2021•Taylor & Francis
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 …
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 …
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.
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