Simple Policies for Dynamic Pricing with Imperfect Forecasts

Yiwei Chen () and Vivek F. Farias ()
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Yiwei Chen: School of Business, Renmin University of China, 100872 Beijing, China
Vivek F. Farias: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Operations Research, 2013, vol. 61, issue 3, 612-624

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.

Keywords: optimal control; dynamic programming; suboptimal algorithms; analysis of algorithms (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (21)

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