Technical note -- Static pricing: universal guarantees for reusable resources
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Publication:5080669
DOI10.1287/OPRE.2020.2054zbMATH Open1493.91052arXiv1905.00731OpenAlexW3134327003MaRDI QIDQ5080669FDOQ5080669
Authors: Omar Besbes, Adam N. Elmachtoub, Yunjie Sun 
Publication date: 31 May 2022
Published in: Operations Research (Search for Journal in Brave)
Abstract: We consider a fundamental pricing model in which a fixed number of units of a reusable resource are used to serve customers. Customers arrive to the system according to a stochastic process and upon arrival decide whether or not to purchase the service, depending on their willingness-to-pay and the current price. The service time during which the resource is used by the customer is stochastic and the firm may incur a service cost. This model represents various markets for reusable resources such as cloud computing, shared vehicles, rotable parts, and hotel rooms. In the present paper, we analyze this pricing problem when the firm attempts to maximize a weighted combination of three central metrics: profit, market share, and service level. Under Poisson arrivals, exponential service times, and standard assumptions on the willingness-to-pay distribution, we establish a series of results that characterize the performance of static pricing in such environments. In particular, while an optimal policy is fully dynamic in such a context, we prove that a static pricing policy simultaneously guarantees 78.9% of the profit, market share, and service level from the optimal policy. Notably, this result holds for any service rate and number of units the firm operates. Our proof technique relies on a judicious construction of a static price that is derived directly from the optimal dynamic pricing policy. In the special case where there are two units and the induced demand is linear, we also prove that the static policy guarantees 95.5% of the profit from the optimal policy. Our numerical findings on a large testbed of instances suggest that the latter result is quite indicative of the profit obtained by the static pricing policy across all parameters.
Full work available at URL: https://arxiv.org/abs/1905.00731
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- Pricing of reusable resources under ambiguous distributions of demand and service time with emerging applications
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