Dynamic Pricing with a Prior on Market Response
Name
Farias_Dynamic pricing.pdf
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889.8 KB
Format
Adobe PDF
Checksum (MD5)
aac2eb380947cd199c2184dbfa7aafc2
Author(s)
Farias, Vivek F.
Van Roy, Benjamin
Date Issued
January 2010
Journal
Operations Research
Publisher
Institute for Operations Research and the Management Sciences
Citation
Farias, Vivek F. and Benjamin Van Roy. "Dynamic Pricing with a Prior on Market Response." (2010) Operations Research 58.1.
Version
Author's final manuscript
Abstract
We study a problem of dynamic pricing faced by a vendor with limited inventory, uncertain
about demand, aiming to maximize expected discounted revenue over an infinite time horizon.
The vendor learns from purchase data, so his strategy must take into account the impact of
price on both revenue and future observations. We focus on a model in which customers arrive
according to a Poisson process of uncertain rate, each with an independent, identically
distributed reservation price. Upon arrival, a customer purchases a unit of inventory if and only if his reservation price equals or exceeds the vendor’s prevailing price.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/opre.1090.0729
