Distribution-Free Contextual Dynamic Pricing

DOI10.1287/MOOR.2023.1369MaRDI QIDQ6149408zbMATH OpenOpenAlexFDO

Authors Yiyun Luo, Wei Sun, Yufeng Liu

Publication date 5 March 2024

Published in Mathematics of Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2109.07340

zbMATH Keywords

classificationdynamic pricinglinear banditsregret analysis

Mathematics Subject Classification ID

Microeconomic theory (price theory and economic markets) (91B24)

Abstract: Contextual dynamic pricing aims to set personalized prices based on sequential interactions with customers. At each time period, a customer who is interested in purchasing a product comes to the platform. The customer's valuation for the product is a linear function of contexts, including product and customer features, plus some random market noise. The seller does not observe the customer's true valuation, but instead needs to learn the valuation by leveraging contextual information and historical binary purchase feedbacks. Existing models typically assume full or partial knowledge of the random noise distribution. In this paper, we consider contextual dynamic pricing with unknown random noise in the valuation model. Our distribution-free pricing policy learns both the contextual function and the market noise simultaneously. A key ingredient of our method is a novel perturbed linear bandit framework, where a modified linear upper confidence bound algorithm is proposed to balance the exploration of market noise and the exploitation of the current knowledge for better pricing. We establish the regret upper bound and a matching lower bound of our policy in the perturbed linear bandit framework and prove a sub-linear regret bound in the considered pricing problem. Finally, we demonstrate the superior performance of our policy on simulations and a real-life auto-loan dataset.

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Cited in

(4)

• Contextual Search in the Presence of Adversarial Corruptions
• Learning to sell a focal-ancillary combination
• Contextual Dynamic Pricing with Strategic Buyers
• Data-driven robust multiproduct pricing with fairness concerns

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