Biased recommendations arise naturally in a market with heterogeneous consumers:
a seller oers a product to a mix of consumers who can purchase through an intermediary
or directly from a seller. \Picky" consumers are uncertain about match quality,
which they observe only after purchase, while \
exible" consumers are always happy
with the match. Therefore, picky consumers rely on the intermediary's recommendation.
We provide conditions under which the intermediary will recommend a welfarereducing
bad match with positive probability, resulting in in
ated recommendations.
Regulatory interventions may lead to higher social welfare. However, a regulatory intervention
that prohibits recommending bad matches may backre.