Selling with Product Recommendation and Efficient Below-Cost Pricing

A long-lived seller sells a product by setting prices and making product recommendations to short-lived consumers arriving in continuous time. The seller receives consumer feedback about the product value, whose arrival rate depends on the instantaneous sales volume. Under a constant pricing regime, the seller sets a price above the production cost and spams consumers with non-authentic product recommendations; under a flexible pricing regime, the seller never spams the consumers and may set the price below the production cost for an initial or interim period; the product price can cycle between low and high prices. Compared to constant pricing, flexible pricing generates higher sales revenue without affecting consumer surplus