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.

Method and system for dynamic pricing

Abstract: The method and system of the present invention enables Internet businesses to conduct real-time, online experiments on a sample of transactions to determine marketplace sensitivities. Analysis of the results of the experiments reveal optimal values of key market decision variables such as price, content of banner ads, promotion levels, quantity discount schemes, etc. The experiments may be automatically conducted on an on-going basis, or may be conducted on a periodic basis. The method and system of the present invention preferably allow users to modify the nature of the experiment and the propagation of optimal values. The method and system of the current invention can be used for a pure diagnostic purpose or to automate the setting of key market variables. The dynamic experimentation used by the inventive system reveals the relative stability (or instability) of the networked market within which the business operates. The translation of an optimal value for a key variable (for example, price) to the entire market can be done on a real-time basis.

Intertemporal Pricing and Consumer Stockpiling

Abstract: We study a dynamic pricing problem for a class of products with stable consumption patterns (e.g., household items, staple foods). Consumers may stock up the product at current prices for future consumption, but they incur inventory holding costs. We model this situation as a dynamic game over an infinite time horizon: in each period, the seller sets a price, and each consumer chooses how many units to buy. We develop a solution methodology based on rational expectations. By endowing each player with beliefs, we decouple the dynamic game into individual dynamic programs for each player. We solve for the rational expectations equilibrium, where all players make optimal dynamic decisions given correct beliefs about others' behavior. In equilibrium, the seller may either charge a constant fixed price or offer periodic price promotions at predictable time intervals. We show that promotions are useful when frequent shoppers are willing to pay more for the product than are occasional shoppers. We also develop several model extensions to study the impact of consumer stockpiling on the seller's inventory, production, and rationing strategies.

Feature-Based Dynamic Pricing

Abstract: We consider the problem faced by a firm that receives highly differentiated products in an online fashion and needs to set prices so as to sell them to its customer base. Products are described by vectors of features and the market value of each product is assumed to be linear in the values of the features. The firm does not initially know the values of the different features, but it can learn the values of the features based on whether products sold at the posted prices in the past. This model is motivated by a question in online advertising where impressions arrive over time and can be described by vectors of features. We first consider a multi-dimensional version of binary search over polyhedral sets, and show that it has exponential worst-case regret in the dimension of the feature space. We then show that a modification of the prior algorithm, where uncertainty sets are replaced by their Lowner-John ellipsoids has a worst-case regret that is quadratic in the dimension of the feature space and logarithmic in the time horizon.

Chasing Demand: Learning and Earning in a Changing Environment

Abstract: We consider a dynamic pricing problem in which a seller faces an unknown demand model that can change over time. We measure the amount of change over a time horizon of T periods using a quadratic variation metric, and allow a finite "budget" for such changes. We first derive a lower bound on the expected performance gap between any pricing policy and a clairvoyant who knows a priori the temporal evolution of the underlying demand model, and then design families of near-optimal pricing policies, the revenue performance of which asymptotically matches said lower bound. We also show that the seller can achieve a substantially better revenue performance in demand environments that change in "bursts" than it would in a demand environment that changes "smoothly." Finally, we extend our analysis to the case of rapidly changing demand settings, and obtain a range of results that quantify the net effect of the volatility in the demand environment on the seller’s revenue performance.

Joint pricing and advertising strategy with reference price effect

Abstract: Consumers are susceptible to reference price effects when they make purchase decisions for a certain product. Meanwhile, the sales price and advertisement are the determinable factors that have impact on consumers’ reference price which are also fundamental marketing strategies. Therefore, how to determine an appropriate sales price and advertising effort level to maximise firms’ profits is an essential task. A joint pricing and advertising problem for a monopolistic firm with consideration of reference price effect is investigated, where consumer demand rate is price-sensitivity and depends on the gap between the sales price and the reference price in consumers’ mind. An optimisation model is established to maximise the firm’s total profit by making a joint pricing and advertising strategy. The static and dynamic joint strategies are obtained by applying Pontryagin’s maximum principle. Results show that the dynamic strategies dominate the static ones. Furthermore, the dynamic pricing and dynamic advertis...