Dynamic Pricing Over Finite Horizons

Guillermo Gallego and Huseyin Topaloglu
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Huseyin Topaloglu: Cornell University

Chapter Chapter 9 in Revenue Management and Pricing Analytics, 2019, pp 245-273 from Springer

Abstract: Abstract In this chapter, we first consider the problem of dynamically pricing one or more products that consume a single resource. Sales take place over a finite selling horizon, and the objective is to maximize the expected revenue that can be obtained from a finite inventory of the resource. We will assume that inventories cannot be replenished during the sales horizon. This problem setup holds for hotels, airlines, and seasonal merchandise including fashion retailing that have long procurement lead times. In this chapter, we focus on models that explicitly consider the stochastic and dynamic nature of demand. We use dynamic programming formulations to compute an optimal policy as a function of the remaining inventory and the time-to-go. In some cases, we are able to give closed-form solutions for the value function and the optimal pricing policy. In other cases, we resort to numerical solutions and to heuristic policies.

Date: 2019
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DOI: 10.1007/978-1-4939-9606-3_9

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