Selling with Recommender Systems and Price Dynamics

43 Pages Posted: 29 Mar 2022 Last revised: 31 Aug 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 new 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 profit-maximizing selling mechanism features episodes of price discounts, during which the seller discontinuously lowers the price and selectively sends out unwarranted recommendations to consumers. The optimal price path may involve delayed discounts, below-cost pricing, and price cycles.

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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