Peer Recommendations, Consumption Variety, and Product Performance: Evidence from a Digital Music Platform

Abstract

Users and suppliers of complementary products on digital platforms routinely face several non-trivial challenges due to an overload of information and fierce competition for attention. As such, effective management and governance mechanisms facilitating network effects and value co-creation with suppliers are an important determinant of a platform's competitive advantage. In the present study, we analyze a peer-based recommendation system on a digital music platform, arguing that it can facilitate the match between products' horizontal characteristics and users' idiosyncratic tastes or encourage users' exploration of new varieties, leading to an increase in products' performance. We derive predictions from a simple theoretical model of peer recommendations which we subsequently test at two levels of analysis. Our results provide strong evidence that peer recommendations indeed lead to increased performance of complementary products, and that they encourage users to extend the scope of the varieties they consume.