Dealing with the dimensionality curse in dynamic pricing competition: using frequent repricing to compensate imperfect market anticipations

DOI10.1016/J.COR.2018.07.011zbMATH Open1458.91130arXiv1809.02433OpenAlexW2883715324WikidataQ129507456 ScholiaQ129507456MaRDI QIDQ1782151FDOQ1782151

Authors: Rainer Schlosser, Martin Boissier 

Publication date: 18 September 2018

Published in: Computers \& Operations Research (Search for Journal in Brave)

Abstract: Most sales applications are characterized by competition and limited demand information. For successful pricing strategies, frequent price adjustments as well as anticipation of market dynamics are crucial. Both effects are challenging as competitive markets are complex and computations of optimized pricing adjustments can be time-consuming. We analyze stochastic dynamic pricing models under oligopoly competition for the sale of perishable goods. To circumvent the curse of dimensionality, we propose a heuristic approach to efficiently compute price adjustments. To demonstrate our strategy's applicability even if the number of competitors is large and their strategies are unknown, we consider different competitive settings in which competitors frequently and strategically adjust their prices. For all settings, we verify that our heuristic strategy yields promising results. We compare the performance of our heuristic against upper bounds, which are obtained by optimal strategies that take advantage of perfect price anticipations. We find that price adjustment frequencies can have a larger impact on expected profits than price anticipations. Finally, our approach has been applied on Amazon for the sale of used books. We have used a seller's historical market data to calibrate our model. Sales results show that our data-driven strategy outperforms the rule-based strategy of an experienced seller by a profit increase of more than 20%.

Full work available at URL: https://arxiv.org/abs/1809.02433

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zbMATH Keywords

dynamic programmingdynamic pricinge-commerceoligopoly competitiondata-driven strategies

Mathematics Subject Classification ID

Dynamic programming (90C39) Special types of economic markets (including Cournot, Bertrand) (91B54)

Cites Work

• Dynamic price competition with fixed capacities
• A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles
• The theory and practice of revenue management
• Dynamic pricing in the presence of strategic consumers and oligopolistic competition
• Tracking the market: dynamic pricing and learning in a changing environment
• Multiproduct price optimization and competition under the nested logit model with product-differentiated price sensitivities
• Estimating primary demand for substitutable products from sales transaction data
• Dynamic pricing and inventory control: uncertainty and competition
• Stochastic dynamic pricing and advertising in isoelastic oligopoly models

Cited In (3)

• Stochastic dynamic multi-product pricing under competition
• Automated repricing and ordering strategies in competitive markets
• Ordering and pricing decisions for perishable goods retailer with zero‐inventory and capital constraints

Uses Software

• XGBoost

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