Simple Policies for Dynamic Pricing with Imperfect Forecasts

Yiwei Chen · Vivek F. Farias

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Supply Chain and Inventory Management Consumer Market Behavior and Pricing Optimization and Search Problems

Abstract

We consider the “classical” single-product dynamic pricing problem allowing the “scale” of demand intensity to be modulated by an exogenous “market size” stochastic process. This is a natural model of dynamically changing market conditions. We show that for a broad family of Gaussian market-size processes, simple dynamic pricing rules that are essentially agnostic to the specification of this market-size process perform provably well. The pricing policies we develop are shown to compensate for forecast imperfections (or a lack of forecast information altogether) by frequent reoptimization and reestimation of the “instantaneous” market size.

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References

1969A New Product Growth for Model Consumer Durables 2004A New Product Growth for Model Consumer Durables 2004The Theory and Practice of Revenue Management 2000The Value of Information Sharing in a Two-Level Supply Chain 1981Point Processes and Queues 1994Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons 2003Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions 1999Revenue Management: Research Overview and Prospects

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