Selling with Recommender Systems and Price Dynamics

37 Pages Posted: 29 Mar 2022 Last revised: 29 Oct 2022

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, which are derived recursively using a characteristic function. In the optimal mechanism, below-cost pricing can occur during an initial period or an interim period, and price cycles may emerge. In this market, restrictions on either prices or recommendation strategies lead to Pareto-inferior outcomes.

Keywords: Dynamic pricing, information design, product recommendation, consumer feedback, below-cost pricing, price cycle

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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