Dynamic pricing

About: Dynamic pricing is a research topic. Over the lifetime, 4144 publications have been published within this topic receiving 91390 citations. The topic is also known as: surge pricing & demand pricing.

Dynamic Pricing and Investment from Static Proxy Models

Abstract: This paper evaluates the use of static cost proxy models in setting forward-looking prices such as the prices set according to the FCC’s TELRIC methodology. First, it compares the time paths of prices and depreciation under traditional regulatory accounting with the prices and depreciation implied by various versions of TELRIC. When TELRIC prices are recomputed at intervals shorter than asset lives, the firm will generally not earn the target rate of return. In these cases, a correction factor must be applied to the TELRIC price path in order for revenues to exactly recover investment cost, including the target rate of return. Next, the paper considers a firm’s cost minimizing investment decisions under two different assumptions about asset obsolescence. In both scenarios, cost minimizing investment paths and implied utilization rates for the firm’s assets are derived under a variety of assumptions about the relevant input parameters. Some implications for TELRIC pricing are then derived.

When the price is right: enabling time-dependent pricing of broadband data

Abstract: In an era of 108% annual growth in demand for mobile data and $10/GB overage fees, Internet Service Providers (ISPs) are experiencing severe congestion and in turn are hurting consumers with aggressive pricing measures. But smarter practices, such as time-dependent pricing (TDP), reward users for shifting their non-critical demand to off-peak hours and can potentially benefit both users and ISPs. Although dynamic TDP ideas have existed for many years, dynamic pricing for mobile data is only now gaining interest among ISPs. Yet TDP plans require not only systems engineering but also an understanding of economic incentives, user behavior and interface design. In particular, the HCI aspects of communicating price feedback signals from the network and the response of mobile data users need to be studied in the real world. But investigating these issues by deploying a virtual TDP data plan for real ISP customers is challenging and rarely explored. To this end, we carried out the first TDP trial for mobile data in the US with 10 families. We describe the insights gained from the trial, which can help the HCI community as well as ISPs, app developers and designers create tools that empower users to better control their usage and save on their monthly bills, while also alleviating network congestion.

A joint dynamic pricing and advertising model of perishable products

Abstract: Advertising and dynamic pricing play key roles in maximizing profit of a firm. In this paper a joint dynamic pricing and advertising problem for perishable products is investigated, where the time-varying demand rate is decreasing in sales price and increasing in goodwill. A dynamic optimization model is proposed to maximize total profit by setting a joint pricing and advertising policy under the constraint of a limited advertising capacity. By solving the dynamic optimization problem on the basis of Pontryagin’s maximum principle, the analytical solutions of the optimal joint dynamic pricing and advertising policy are obtained. Additionally, to highlight the advantage of the joint dynamic strategy, the case of the optimal advertising with static pricing policy is considered. Numerical examples are presented to illustrate the validness of the theoretical results, and some managerial implications for the pricing and advertising of the perishable products are provided.

HOT or Not: Driver Elasticity to Price on the MnPASS HOT Lanes

Abstract: The Minnesota Department of Transportation (MnDOT) has added MnPASS High Occupancy Toll (HOT) lanes on two freeway corridors. While not the first HOT lanes in the country, the MnPASS lanes are the first implementation of road pricing in Minnesota and possess a dynamic pricing schedule. Tolls charged to single occupancy vehicles (SOVs) are adjusted every three minutes according to HOT lane vehicle density. Given the infancy of systems like MnPASS, questions remain about drivers’ responses to toll prices. Three field experiments were conducted on the corridors during which prices were changed. Data from the field experiments as well as two years of toll and traffic data were analyzed to measure driver responses to pricing changes. Driver elasticity to price was positive with magnitudes less than 1.0. This positive relationship between price and demand is in contrast with the previously held belief that raising the price would discourage demand. We hypothesize this is because drivers use price as a signal of time savings. In addition, drivers consistently paid between approximately $60-120 per hour of travel time savings, much higher than the average value of time. Reasoning for these results is discussed as well as the implications these results have on the pricing of HOT lanes.