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.

A Comparative Revenue Analysis of Hotel Yield Management Heuristics

Abstract: Yield management is the dynamic pricing, overbooking, and allocation of perishable assets across market segments in an effort to maximize short-term revenues for the firm. Numerous optimization heuristics for allocation and overbooking exist for the airline industry, whose perishable asset is the airplane seat. When an airplane departs, no revenue is gained from the empty seat(s). In the hotel industry, the perishable asset is the hotel room-once a room is left empty for a night, that night's revenue cannot be recaptured. The literature on yield management heuristics for the hotel industry is sparse. For the hotel operating environment, no research has adequately (1) integrated overbooking with allocation, (2) modeled the phenomenon of hotel patrons extending or contracting their stay at a moment's notice, or (3) performed a realistic performance comparison of alternative heuristics. This research develops (1) two hotel-specific algorithms that both integrate overbooking with the allocation decisions, (2) a simulation model to reproduce realistic hotel operating environments, and (3) compares the performance of five heuristics under 36 realistic hotel operating environments. Seven conclusions are reached with regard to which heuristic(s) perform best in specific operating environments. Generally, heuristic selection is very much dependent on the hotel operating environment. A counterintuitive result is that in many operating environments, the simpler heuristics work as well as the more complex ones.

The Dynamic Pricing of Next Generation Consumer Durables

Abstract: Learning curve effects, aspects of consumer demand models e.g., reservation price distributions, intertemporal utility maximizing behavior, and competitive activity are reasons which have been offered to explain why prices of new durables decline over time. This paper presents an alternative rationale based on the buying behavior for products with overlapping replacement cycles i.e., next generation products. A model for consumer sales of a new durable is developed by incorporating the replacement behavior of a previous generation product. Pricing strategies for two product generations are investigated analytically and with numerical methods. Results indicate that durable replacement behavior leads to a wider set of optimal pricing strategies than previously obtained. Several empirical illustrations of industry pricing practices for successive product generations are also shown to be consistent with the theoretical results. Finally, various areas for future research are outlined.

Optimal Dynamic Pricing Policies for an M/M/s Queue

Abstract: We consider the problem of maximizing the long-run average expected reward per unit time in a queuing-reward system, which we formulate as a semi-Markov decision process. Control of the system is effected by increasing or decreasing the price charged for the facility's service in order to discourage or encourage the arrival of customers. We assume that the arrival process is Poisson with arrival rate a strictly decreasing function of the currently advertized price, and that the service times are independent exponentially distributed random variables. The reward structure consists of customer payments and holding costs possibly nonlinear. At each transition customer arrival or service completion, the manager of the facility must choose one of a finite number of prices to advertize until the next transition. We show that there exist optimal stationary policies and that each possesses the monotonicity property: the optimal price to advertize is a nondecreasing function of the number of customers in the system. An efficient computational algorithm is developed that, in a finite number of steps, produces a stationary policy that is optimal.

Technical Note---A Note on Optimal Strategic Pricing of Technological Innovations

Abstract: The experience curve phenomenon of falling marginal costs associated with accumulated output or production experience has given rise to dynamic pricing models. Optimal pricing policies will depend upon the nature of the dynamic demand and cost functions. In this note we shall show that the demand function employed by Bass Bass, F. M. 1980. The relationship between diffusion rates, experience curves, and demand elasticities for consumer durable technological innovations. J. Bus.53 July S51--S67. when taken in conjunction with the experience curve cost function leads to a multiperiod pricing strategy which is always less than the myopically optimal price. Further, we present a dynamic programming algorithm for the multiperiod strategy in which we have explored the effects on discounted profits of myopic pricing versus multiperiod pricing. The results of this comparison may, to some, be somewhat surprising and may have managerial significance.