Selling with Recommender Systems and Price Dynamics

A long-lived seller sells a product 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.