The impact of sponsored results on the quality of information gatekeepers

Authors:
Hemant Bhargava;Juan Feng
Affiliations:
University of California at Davis, Davis, CA;University of Florida, Gainesville, FL
Venue:
Proceedings of the ninth international conference on Electronic commerce
Year:
2007

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Abstract

Information gatekeepers, such as Internet search engines, travel experts, comparison shopping systems, credit raters, radio deejays, and movie critics, are an essential entry point for many information search and decision making tasks. They make recommendations on these tasks based on their expertise, but also frequently due to sponsorship by interested merchants. We develop and analyze a tractable model in which consumers may prefer or dislike the use of sponsored results in the recommendations, merchants' value for sponsorship increases with the gatekeeper's user base, and when there are negative externalities among merchants competing for consumers' attention. The optimal strategy strikes a balance between sponsorship revenues from merchants and user-based revenues. The gatekeeper may employ sponsored recommendations even when doing so is detrimental to users, or may not present enough sponsored results even when these improve the quality of recommendations. Product innovations or better domain expertise give the gatekeeper greater flexibility in using sponsored results.