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Simple Policies for Dynamic Pricing with Imperfect Forecasts

Author(s)
Chen, Yiwei; Farias, Vivek F.
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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.
Date issued
2013-06
URI
http://hdl.handle.net/1721.1/87676
Department
Sloan School of Management
Journal
Operations Research
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Chen, Yiwei, and Vivek F. Farias. “Simple Policies for Dynamic Pricing with Imperfect Forecasts.” Operations Research 61, no. 3 (June 2013): 612–624.
Version: Author's final manuscript
ISSN
0030-364X
1526-5463

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