Supply-Side Equilibria in Recommender Systems

Digital recommender systems such as Spotify and Netflix affect not only consumer behavior but also producer incentives: producers seek to supply content that will be recommended by the system. But what content will be produced? In this paper, we investigate the supply-side equilibria in content recommender systems. We model users and content as $D$-dimensional vectors, and recommend the content that has the highest dot product with each user. The main features of our model are that the producer decision space is high-dimensional and the user base is heterogeneous. This gives rise to new qualitative phenomena at equilibrium: First, the formation of genres, where producers specialize to compete for subsets of users. Using a duality argument, we derive necessary and sufficient conditions for this specialization to occur. Second, we show that producers can achieve positive profit at equilibrium, which is typically impossible under perfect competition. We derive sufficient conditions for this to occur, and show it is closely connected to specialization of content. In both results, the interplay between the geometry of the users and the structure of producer costs influences the structure of the supply-side equilibria. At a conceptual level, our work serves as a starting point to investigate how recommender systems shape supply-side competition between producers.