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Robust Dynamic Pricing With Strategic Customers

Published: 15 June 2015 Publication History

Abstract

We consider the canonical problem of revenue management (RM) wherein a seller must sell an inventory of some product over a finite horizon via an anonymous, posted price mechanism. Unlike typical models in RM, we assume that customers are forward looking. In particular, customers arrive randomly over time, and strategize about their time of purchase. The private valuations of these customers decay over time and the customers incur monitoring costs; both the rate of decay and these monitoring costs are private information. Moreover, customer valuations and monitoring costs are potentially correlated. This setting has proven to be a difficult one for the design of optimal dynamic mechanisms heretofore. Optimal pricing schemes -- an almost necessary mechanism format for practical RM considerations -- have been similarly elusive.
We propose a class of pricing policies, and a simple to compute policy within this class, that is guaranteed to achieve expected revenues that are at least within 29% of those under an optimal (not necessarily posted price) dynamic mechanism. Moreover, the seller can compute this pricing policy without any knowledge of the distribution of customer discount factors and monitoring costs. Our scheme can be interpreted as solving a dynamic pricing problem for myopic customers with the additional requirement of a novel --restricted submartingale constraint on prices. Numerical experiments suggest that the policy is, for all intents, near optimal.

Cited By

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  • (2022)Dynamic air ticket pricing using reinforcement learning methodRAIRO - Operations Research10.1051/ro/2022103Online publication date: 16-Jun-2022
  • (2021)Airline ticket price and demand prediction: A surveyJournal of King Saud University - Computer and Information Sciences10.1016/j.jksuci.2019.02.00133:4(375-391)Online publication date: May-2021
  • (2020)Reserve pricing in repeated second-price auctions with strategic biddersProceedings of the 37th International Conference on Machine Learning10.5555/3524938.3525189(2678-2689)Online publication date: 13-Jul-2020
  • Show More Cited By

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Information

Published In

cover image ACM Conferences
EC '15: Proceedings of the Sixteenth ACM Conference on Economics and Computation
June 2015
852 pages
ISBN:9781450334105
DOI:10.1145/2764468
Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for third-party components of this work must be honored. For all other uses, contact the Owner/Author.

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 15 June 2015

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Author Tags

  1. algorithm
  2. dynamic pricing
  3. revenue management
  4. strategic customers

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Conference

EC '15
Sponsor:
EC '15: ACM Conference on Economics and Computation
June 15 - 19, 2015
Oregon, Portland, USA

Acceptance Rates

EC '15 Paper Acceptance Rate 72 of 220 submissions, 33%;
Overall Acceptance Rate 664 of 2,389 submissions, 28%

Upcoming Conference

EC '25
The 25th ACM Conference on Economics and Computation
July 7 - 11, 2025
Stanford , CA , USA

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Cited By

View all
  • (2022)Dynamic air ticket pricing using reinforcement learning methodRAIRO - Operations Research10.1051/ro/2022103Online publication date: 16-Jun-2022
  • (2021)Airline ticket price and demand prediction: A surveyJournal of King Saud University - Computer and Information Sciences10.1016/j.jksuci.2019.02.00133:4(375-391)Online publication date: May-2021
  • (2020)Reserve pricing in repeated second-price auctions with strategic biddersProceedings of the 37th International Conference on Machine Learning10.5555/3524938.3525189(2678-2689)Online publication date: 13-Jul-2020
  • (2019)Optimal pricing in repeated posted-price auctions with different patience of the seller and the buyerProceedings of the 33rd International Conference on Neural Information Processing Systems10.5555/3454287.3454372(941-953)Online publication date: 8-Dec-2019
  • (2018)Robust Capacity Control in Revenue Management: A Literature ReviewOpen Journal of Business and Management10.4236/ojbm.2018.6203706:02(488-497)Online publication date: 2018
  • (2018)Dynamic Mechanisms with Martingale UtilitiesManagement Science10.1287/mnsc.2017.287264:11(5062-5082)Online publication date: 1-Nov-2018
  • (2018)Revenue-Maximizing Mechanisms with Strategic Customers and Unknown, Markovian DemandManagement Science10.1287/mnsc.2017.272464:5(2031-2046)Online publication date: 1-May-2018
  • (2018)Randomized Markdowns and Online MonitoringManagement Science10.1287/mnsc.2016.266164:3(1271-1290)Online publication date: 1-Mar-2018
  • (2017)Horizon-Independent Optimal Pricing in Repeated Auctions with Truthful and Strategic BuyersProceedings of the 26th International Conference on World Wide Web10.1145/3038912.3052700(33-42)Online publication date: 3-Apr-2017
  • (2017)Optimal pricing policy of network goods2017 55th Annual Allerton Conference on Communication, Control, and Computing (Allerton)10.1109/ALLERTON.2017.8262811(739-743)Online publication date: Oct-2017
  • Show More Cited By

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