Advertising or recommender systems? A game‐theoretic analysis of online retailer platforms' decision‐making

Advertising and recommender systems are two germane demand creation tools to expand the market. We examine the model comprising two manufacturers and one online retailer to study the efficacy of advertising investment based on recommender systems with and without considering cost sharing. Based on game‐theoretic models and numerical analysis in three scenarios, some managerial insights are suggested for online retailers to be the best beneficiary and avoid “free riders.” For the whole supply chain, advertising has a better effect than recommender systems when their coefficients are small. Otherwise, leveraging recommender systems is a predominant strategy for the whole supply chain.