Selling with Recommender Systems and Price Dynamics

41 Pages Posted: 29 Mar 2022 Last revised: 9 Jun 2023

See all articles by Wenji Xu

Wenji Xu

City University of Hong Kong

Shuoguang Yang

The Hong Kong University of Science and Technology

Date Written: March 5, 2022

Abstract

A long-lived seller sells a product of unknown value through a recommender system that offers prices and recommends products to short-lived consumers in continuous time. The seller receives feedback about the product at a rate that increases with the instantaneous sales volume. The optimal selling mechanism is characterized by information cutoffs and features episodes of price discounts and overrecommendation. The discount periods begin or end when the seller's belief about the product value hits the information cutoffs. During each discount period, the seller lowers the price and selectively sends out unwarranted recommendations to consumers. In this market, restrictions on either prices or recommendation strategies lead to Pareto-inferior outcomes.

Keywords: Dynamic pricing, information design, social learning.

JEL Classification: D82, D83, L12

Suggested Citation

Xu, Wenji and Yang, Shuoguang, Selling with Recommender Systems and Price Dynamics (March 5, 2022). Available at SSRN: https://ssrn.com/abstract=4050495 or http://dx.doi.org/10.2139/ssrn.4050495

Wenji Xu (Contact Author)

City University of Hong Kong ( email )

9-246, Lau Ming Wai Academic Building
Hong Kong, Hong Kong
Hong Kong

Shuoguang Yang

The Hong Kong University of Science and Technology ( email )

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