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Dynamic Pricing with a Prior on Market Response

Author(s)
Farias, Vivek F.; Van Roy, Benjamin
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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.
Date issued
2010-01
URI
http://hdl.handle.net/1721.1/64802
Department
Sloan School of Management
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
ISSN
0030-364X
1526-5463

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