Simple Policies for Dynamic Pricing with Imperfect Forecasts
Author(s)Chen, Yiwei; Farias, Vivek F.
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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.
DepartmentSloan School of Management
Institute for Operations Research and the Management Sciences (INFORMS)
Chen, Yiwei, and Vivek F. Farias. “Simple Policies for Dynamic Pricing with Imperfect Forecasts.” Operations Research 61, no. 3 (June 2013): 612–624.
Author's final manuscript