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.

Optimal Dynamic Pricing for Trading-Off User Utility and Operator Profit in Smart Grid

Abstract: A conventional power grid is criticized by its poor capability of power usage management, especially in handling dynamically varying power demands over time. The concept of smart grid has been introduced to mitigate this problem by satisfying not only real-time power demands, but also by restricting power usage within the capacity. Its consistent outperformance and new perspective in computer intelligence to control the grid for autonomous power consumption has been gradually replacing the conventional power grid. However, even in smart grid, providing high satisfaction to users often leads smart grid operator (SGO) to loss and vice versa. In this paper, we develop an optimal dynamic pricing mechanism for trading-off (ODPT), for SGOs that tradeoff between user utility and operator profit in smart grid systems. It allows the operator to purchase power from multiple energy producers and to set selling price to users dynamically following the demand-supply theory of economics. It also exploits an artificial neural network model to more accurately predict the power usage. The simulation results, carried out on a commercially available optimization modeling tool using practical power usage data, prove the effectiveness of the proposed ODPT in increasing the operator profit while satisfying user demands.

Optimal Dynamic Pricing with Patient Customers

Abstract: We consider an infinite-horizon single-product pricing problem in which a fraction of customers is patient and the remaining fraction is impatient. A patient customer will wait up to some fixed number of time periods for the price of the product to fall below his or her valuation at which point the customer will make a purchase. If the price does not fall below a patient customer’s valuation at any time during those periods, then that customer will leave without buying. In contrast, impatient customers will not wait, and either buy immediately or leave without buying. We prove that there is an optimal dynamic pricing policy comprised of repeating cycles of decreasing prices. We obtain bounds on the length of these cycles, and we exploit these results to produce an efficient dynamic programming approach for computing such an optimal policy. We also consider problems in which customers have variable levels of patience. For such problems, cycles of decreasing prices may no longer be optimal, but numerical ex...

Dynamic pricing of substitutable products in the presence of capacity flexibility

Abstract: Firms that offer multiple products are often susceptible to periods of inventory mismatches where one product may face shortages while the other has excess inventories. In this paper, we study a joint implementation of price- and capacity-based substitution mechanisms to alleviate the level of such inventory disparities. We consider a firm producing substitutable products via a capacity portfolio consisting of both product-dedicated and flexible resources and characterize the structure of the optimal production and pricing decisions. We then explore how changes in various problem parameters affect the optimal policy structure. We show that the availability of a flexible resource helps maintain stable price differences across products over time even though the price of each product may fluctuate over time. This result has favorable ramifications from a marketing standpoint because it suggests that even when a firm applies a dynamic pricing strategy, it may still establish consistent price positioning among...

The Strategic Impact of References in Business Markets

Abstract: We investigate a business-to-business context and ask when and why a firm should announce a “reference program” that commits the firm to facilitating the flow of information about the efficacy of its products from early adopters to potential late adopters. We model a monopolist manufacturer with a new innovation that can be sold to two potential customers. We demonstrate here two benefits of a reference program that relate not to an increase in later adopters' willingness to pay but to an increase in the willingness to pay of the early adopters themselves. The impact on the early adopters' willingness to pay arises in two ways as a result of their observation of the firm's commitment to information transmission. First, in a model of symmetric uncertainty, we show that the announcement of a reference program facilitates dynamic pricing by the manufacturer in the sense that it allows the firm to provide temporary exclusive use of the technology to one of the customers. This creates more value, which the manufacturer can extract via a higher price. In this way, a reference program can serve as a partial substitute for an exclusive-use contract. In a model with asymmetric information, we demonstrate that under certain conditions, the firm is able to use the reference program as a signal---again, to the early adopting customer---that its technology is of high quality. However, such a signal requires significant discounts to early adopters to ensure separation. As a result, a pooling equilibrium dominates in which the manufacturer fosters references regardless of its quality. Finally, by allowing the firms' private information to be stochastic, we show that separation may be a dominant outcome.