How Do Recommender Systems Affect Sales Diversity? A Cross-Category Investigation via Randomized Field Experiment

Dokyun Lee, Ph.D. Student in Operations and Information Management, and Kartik Hosanagar, Professor of Operations, Information and Decisions, The Wharton School

Abstract: We investigate the impact of collaborative filtering recommender algorithms (e.g., Amazon’s “Customers who bought this item also bought”) commonly used in e-commerce on sales diversity. We use data from a randomized field experiment run on a top retailer in North America across 82,290 SKUs and 1,138,238 users. We report four main findings. First, we demonstrate across a wide range of product categories that the use of traditional collaborative filters (or CFs) is associated with a decrease in sales diversity relative to a world without product recommendations. Further, the design of the CF matters. CFs based on purchase data are associated with a greater effect size than those based on product views. Second, the decrease in aggregate sales diversity may not always be accompanied by a corresponding decrease in individual-level consumption diversity. In fact, it is even possible for individual consumption diversity to increase while aggregate sales diversity decreases. Third, co-purchase network analysis shows that recommenders can help individuals explore new products but similar users end up exploring the same kinds of products resulting in the concentration bias at the aggregate level. Fourth and finally, there is a difference between absolute and relative impact on niche items. Specifically, absolute sales and views for niche items in fact increase, but their gains are smaller compared to the gains in views and sales for popular items. Thus, while niche items gain in absolute terms, they lose out in terms of market shares.

Hosanagar, Kartik ThumbnailWatch Kartik Hosanagar discuss his research here.

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Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.