Showing papers on "Dynamic pricing published in 1997"

A Multiproduct Dynamic Pricing Problem and Its Applications to Network Yield Management

Abstract: A firm has inventories of a set of components that are used to produce a set of products. There is a finite horizon over which the firm can sell its products. Demand for each product is a stochastic point process with an intensity that is a function of the vector of prices for the products and the time at which these prices are offered. The problem is to price the finished products so as to maximize total expected revenue over the finite sales horizon. An upper bound on the optimal expected revenue is established by analyzing a deterministic version of the problem. The solution to the deterministic problem suggests two heuristics for the stochastic problem that are shown to be asymptotically optimal as the expected sales volume tends to infinity. Several applications of the model to network yield management are given. Numerical examples illustrate both the range of problems that can be modeled under this framework and the effectiveness of the proposed heuristics. The results provide several fundamental insights into the performance of yield management systems.

Periodic Pricing of Seasonal Products in Retailing

Abstract: This paper studies intertemporal pricing policies when selling seasonal products in retail stores. We first present a continuous time model where a seller faces a stochastic arrival of customers with different valuations of the product. For this model, we characterize the optimal pricing policies as functions of time and inventory. We use this model as a benchmark against which we compare more realistic models that consider periodic pricing reviews. We show that the structure of the optimal pricing policies in this case is consistent with the procedures observed in practice; retail stores successively discount the product during the season and promote a liquidation sale at the end of the planning horizon. We also show that the loss experienced when implementing periodic pricing reviews instead of continuous policies is small when the appropriate number of reviews is chosen. Several interesting economic insights emerge from our analysis. For example, uncertainty in the demand for new products leads to higher prices, larger discounts, and more unsold inventory. Finally, we study the effect of announced discount policies on prices and profits. We show that stores that have adopted this type of strategy usually set prices such that with high probability the merchandise is sold during the first periods and the largest discounts rarely take place.

Dynamic pricing as congestion control in ATM networks

Abstract: Several researchers have advocated dynamic pricing mechanisms like the smart market. This paper explores how dynamic state-dependent pricing and explicit congestion control can both be used to avoid and alleviate congestion. We show that dynamic pricing has significant advantages for heterogeneous traffic, although it reduces the raw throughput somewhat. When the propagation delay is non-trivial, a slow-reacting version of dynamic pricing is preferable. This paper also advocates the use of novel stream-oriented best-effort ATM services, with which a stream's arrival process is declared to the network before transmission begins and then policed, although there are no performance guarantees and best-effort streams are never blocked. With this approach, applications have incentive to decrease traffic burstiness, and to reveal important information about their packet streams, making mechanisms like slow-reacting dynamic pricing more practical.

Monopoly pricing with social learning

Abstract: This paper analyzes optimal dynamic pricing by a monopolist in a market where buyers learn about the quality of the good by observing each other. In the initial phase the monopolist prefers prices that allow more transmission of information from current to future buyers. Eventually the monopolist will stop the learning process, either by exiting or by capturing the entire market. Once an expensive good becomes popular, it is optimal for the monopolist to reduce the price and to sell to all consumers. The expected long-run inefficiency is shown to be generally lower than in the model with fixed prices. Efficiency can be enhanced by pricing below marginal cost.

Do inter-firm differences in capabilities affect strategic pricing dynamics?

Abstract: This paper tests the resource-based notion that a firm's existing stock of resources/capabilities is an important determinant of its subsequent strategic decisions -- particularly, dynamic pricing ...

Business models and system architectures for future QoS guaranteed Internet services

Abstract: This paper proposes a new target for the overall business model and system architecture for future broadband networks based on the dynamic pricing of, and high speed micro-payment for, the resources on the network. To illustrate the advantages of the concepts, the paper considers one aspect of the current business problems of Internet service providers (ISPs) and then proposes a solution based on the current work on dynamic price based control of bandwidth resource allocation. The concepts are then extended to show how the signalling and control architectures necessary for this solution can be used for payments for other network resources, in particular, payment for content delivery. This would enable the ISPs to evolve into e-commerce providers with great benefits to all sectors of the information society.