Dynamic Pricing with a Prior on Market Response
Author(s)Farias, Vivek F.; Van Roy, Benjamin
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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.
DepartmentSloan School of Management
Institute for Operations Research and the Management Sciences
Farias, Vivek F. and Benjamin Van Roy. "Dynamic Pricing with a Prior on Market Response." (2010) Operations Research 58.1.
Author's final manuscript